Category Archives: Market Reports

The Confidential Report – April 2020


The US economy, along with economies around the world, is in partial lock-down. Estimates of how this will impact on economic growth vary, but the general consensus seems to be that GDP will shrink in the current quarter by between 10% and 14%. Unemployment is expected to surge from 3,5% before the pandemic to as much as 10%. Weekly jobless claims are expected to climb to around 2 million – from as little as 280 000 before the collapse. This is thought to be tolerable – so long as the lockdown does not continue for more than about 1 month. Compared to the Great Depression of 1929-1939, however, these figures are relatively mild, mainly because the contraction is expected to be much shorter. By the end of this year, most economists expect the world economy to be rapidly returning to normal. Most first world countries have dropped interest rates to close to zero and have announced massive stimulus packages (most notably, the US’s $2 trillion package). During the Great Depression unemployment in America reached as much as 33% and the contraction went on for 10 years. During the 1918 Spanish flu epidemic, 50m people died world wide and GDP declined by about 7%. Because this is a truly unique event in the financial markets, investors really do not know what to make of it. The chart below shows that they initially sold the market down sharply, but in the last five or six days there has been something of a rally.

S&P500 January to March 2020 – Chart by ShareFriend Pro (Click to Enlarge Image)

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The Confidential Report – March 2020

This month’s Confidential Report is dominated by two major developments:

  1. Internationally, by the correction in world markets caused by the coronavirus – which has been gaining some momentum with the S&P500 index down 12,75% at one stage from its highest point.
  2. And locally by the South African Budget – especially the plan to cut R160bn from the wages of 1,3m public servants.


The progress of the virus has been rapid. The number of cases and deaths in China appears to be reaching a plateau, but the virus has spread to Italy, South Korea and Iran. What has unnerved the markets is the growing realisation that corona is looking more and more like a world-wide pandemic with over 85000 infections and 3000 deaths so far. If it is going to impact every country in the world then it will certainly impact on business and hence the stock market. Already companies like AB Inbev are blaming some of their poor results on Corona because Chinese people are not going out in public and consuming beer.

However, corrections are usually the most dramatic at the start and then tend to settle down after a while. The S&P has been falling for 8 trading days now and is down about 11%. In our article on 29th January 2020, we suggested that this correction would probably take the market down between 10% and 20% from its highest point – so we are well on our way to that.

We expect that the market will soon enter a period of “backing and filling” as investors try to assess the true impact of the virus. Gradually, as more clarity emerges, the downward movement will probably be arrested, move sideways, and then eventually give way to a new upward trend. Read More

The Confidential Report – February 2020


The impression may be given that the world economy is in a much better place than it was 6 or 7 years ago mainly because of the strong recovery in the US economy and the record-breaking S&P500 index. However, it is interesting to note that in November 2019 there was approximately $15 trillion being held in first world government bonds at negative real rates of interest. These are funds placed in government bonds at rates of return which are below the current inflation rates of the countries where they are. The only reason for this type of investment is fear. The investors concerned are willing to take a negative real return in exchange for the security of having their money in a government-backed security in a first world country. This contrasts sharply with South Africa where the going inflation rate (CPI) is at 3,7% and government bonds are yielding over 9% – offering a real return of over 5%. It also indicates that there is still a considerable amount of fear out there that the world economy could go into a new tail-spin. This generally supports our view that this bull trend, although now a record-breaking ten years old, still probably has a long way to go. Notably, South African government bonds now offer the best real yield of all emerging economies – so maybe there will be a flood of cash coming into the country when international sentiment shifts back towards “risk-on”.

The US consumer appears to be doing very well. The average of retail sales in the US in November and December of 2019 was up 4,1% on the previous year – a very strong number for such a large economy – which shows that consumers in America are growing in confidence. In fact, confidence levels are now back to levels last seen before the sub-prime crisis and there is indication that, at least in 2020 retails sales will be buoyant. Of course, 2020 is also an election year and the growth of the economy during his first term is going to be Donald Trump’s best argument for re-election. So it is unlikely that the government will do anything which impedes consumer spending at least this year. One interesting element is the level of online sales, which has tripled in the last five years, grew by a record 18,8% last year. About 14% of all retail sales in the US are now online, with outlets like Walmart closing shopfronts at an unprecedented pace. Online shopping is expected to at least double from current levels to around $7 trillion over the next five years. Much of this growth has to be at the expense of in-store shopping. Read More

The Confidential Report – December 2019


The strong upside break of the S&P500 index above its previous cyclical high at 3025 shows that the potential for a “triple top” formation is now behind us – together with October month. Consider the chart:

S&P500 Index January 2018 to December 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

There had been some concerns among investors that the rising triple top (with tops in Jan 2018, September 2018 and July 2019 shown above with the red circles) would predicate a new bear trend potentially from October 2019. October is traditionally a scary month for investors following the collapses of 1929 and 1987.

We never had that opinion. We always thought that the underlying power of the booming US economy would drive share prices higher in a continuation of the great bull market which began in March 2009. The S&P has powered ahead and is more than 4% above the last of the tops in a strong new upward trend. On average, the S&P has gained about 1,7% in December month. While markets tend to have lower volumes because of the holiday season, once October is past there is usually a relief rally through to January of the new year. Read More

The Confidential Report – November 2019


Whenever considering a chart of the S&P500, it is important to put it into its historical context. The situation that we are in now is the result of an extended history that actually goes back to 1929 and before. More recently, in the past ten years, the S&P has been in the process of the longest bull trend since its inception. Experts are confused by this unusually long bull trend because they have not studied the history of how the S&P arrived at this point. In the chart below you can see that the bull trend is marked by a clear upward channel going back to 2009:

S&P500 Index November 2008 to November 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

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