Category Archives: Current Market

Altron


On 31 October 2017, we published our usual monthly Confidential Report and in it we drew your attention to Altron. What we said was:

“For the two years between 2014 and 2016, Altron did badly, but since then the share has executed a long slow “saucer bottom” and now appears to be mounting something of a comeback. The newly appointed CEO, Mteto Nyati, is at the front of this new optimism.

Consider the chart:

Altron (AEL) August to October 2017 – Chart by ShareFriend Pro

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The Confidential Report – October 2019


United States

The Federal Reserve Bank of America (Fed) has cut rates again by a further 0,25% which indicates that the monetary policy committee (MPC) is still concerned about the possibility of the US economy sliding into recession.  At the same time Europe has resumed its quantitative easing program also because of fears of a recession. Some of this is certainly due to the trade war between America and China. Nobody is quite sure how that will play out in the world economy and the primary result has been a shift towards “risk-off”. This risk-off sentiment has had an impact on the S&P500 index and also on the South African rand. Consider the chart of the S&P500 since April 2019:

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

This shows the previous cycle low at 2744 made on 3rd June followed by the rise to the all-time record high at 3025 on 26th July. After that, Trump managed to invoke the next correction with his China trade war taking the S&P down to support at around 2840. A period of sideways movement followed, generating a “flag formation” which we predicted on 4th September would break to the upside. That upside break has occurred, but a new record has not yet been set. The index is currently falling back towards the resistance line of the flag formation – which is at around 2932. That resistance has now become a support level.

In our view, we expect that the index will move upwards from current levels and break above the all-time record high – probably sometime in the next month. That will signal a resumption of the great bull market which has been in progress for over ten years since March 2009. Read More

Central Banks


The functions of a central bank are to maintain the stability of the country’s currency and to ensure growth. Unfortunately, these two objectives are mostly mutually exclusive because growth tends to cause rising inflation while controlling inflation means taking the wind out of the economy’s sails.

When the central bank becomes concerned about inflation, which is often caused by excessive demand, it raises interest rates to curb spending – but, of course, this tends to reduce spending because everyone has to pay more interest on their bonds overdrafts and credit cards. Conversely, when the central bank reduces rates to stimulate growth the increased spending inevitably results in higher inflation sooner or later.

So the Central bank’s monetary policy committee meets every two months (in normal circumstances) to either put their foot on the economy’s accelerator (by reducing rates) or the brakes (by increasing rates). They conduct a very delicate balancing act between economic stimulation and currency stability. In South Africa, that balancing act is considerably complicated by the strength or weakness of the rand against first world currencies.

Changing the level of interest rates is not the Central bank’s only weapon. They can also engage in “open market operations” – which basically means either buying or selling government bonds on the open market. When the central bank buys bonds they are injecting cash into the economy and vice versa. Read More

Spur


The decision to buy into a share is often scary. What if the share falls after you have bought if? You may then have to execute your stop-loss and lose money. There is a tangible feeling of risk.

Obviously, you want to buy a share when it is at a low point in its cycle – after it has fallen so that you can get it cheaply. But when a share falls there is always a reason – and you might be concerned that it could fall further. There is usually considerable negative press which accompanies a falling share and you will definitely feel the risk of investing. In fact, if you don’t feel the risk you are probably not going to make any money.

Of course, the ideal place to buy a share is somewhere close to its cycle bottom – and that means that you must “see a mountain behind you”. In other words, the share should preferably have fallen from a much higher price.

At the same time, it is far better if the share is an established blue chip with a solid business and a long track-record of being profitable. That way you can be fairly certain that it is not going to fail completely and that sooner or later institutional fund managers will begin buying it again.

One of the ways to mitigate the risk is to at least wait until the share has turned and is moving up again. Ideally, you want to buy it when it is past its lowest point and is recovering. You are looking for some sort of upside breakout.

So, where do you find such a share? In this article we would like to draw your attention to a high-quality share which may be worthy of your consideration. Read More

Our Response to the Stockman Article


This article is in response to a request for our opinion about an interview with David Stockman from one of our clients – click here to read what Stockman says.

The adherence to Keynesian economics means that whenever there is any kind of stock market crash, the central banks step in and compensate for the wipe-out of wealth (caused by the crash) by injecting funds. This idea was first put into practice by Alan Greenspan after the 1987 crash and has been used by central bank governors in every major stock market melt-down since – but the amount of money needed to create a recovery has been growing. In the 1980’s it was tens of billions of dollars, in the 1990’s it was hundreds of billions, and in the “noughties”, at the sub-prime crisis, it was trillions. Except that following 2008, the Fed and other central banks ran out of money and had to resort to quantitative easing (Q/E). Altogether, they printed and injected at least $12,5 trillion into the world economy. And they only just managed to rescue the situation – it was touch-and-go for a while. But now the US economy is flourishing on the back of that massive monetary stimulation, plus ultra low interest rates for more than a decade. All the other major central banks followed the Fed’s lead to a greater or lesser extent. So now we have trillions of dollars worth of excess cash sloshing around in the world economy – and, as Stockman says, creating various asset bubbles. We have been mainly concerned about the bubble in shares and predicting what would happen there. But this background explains why we have been almost continuously bullish since 2009, when we said we were looking at the “greatest buying opportunity of the century”.  Read More