ARTICLES

Quantitative Tightening (QT)

Over the past eight years we have all become accustomed to the phrase “quantitative easing” which is a central bank euphemism for printing money. When central banks ran out of money following the sub-prime crisis in 2008, they managed the situation by simply creating vast amounts of new money and injecting it into the world economy. For a while it was touch-and-go whether this approach would work. The world economy teetered precariously on the edge of another great depression. But eventually, like some wounded gargantuan heaving itself out of the primeval mud, the world economy, starting with America, began to recover. An amazing $12,5 trillion dollars was created and injected to achieve this effect and Europe is still printing 60 billion euros a month in their Q/E program. Janet Yellen, the Federal Reserve Bank governor in America is known to be particularly dovish. This means that she would always rather delay raising interest rates or doing anything about the huge amount of US dollars sloshing around in the world economy than face a [glossary_exclude]return[/glossary_exclude] to recession. But now the American economy is showing real signs of a strong recovery – a little too strong it seems. Unemployment is down to an amazing 4,4% and the profits of the [glossary_exclude]S&P500[/glossary_exclude] companies are rising rapidly. Now Yellen is suddenly talking about fixing the Fed’s “balance sheet”. She is talking about taking $10bn a month out of circulation to slowly bring the amount of cash out there down. Of course, $10bn is a drop in the ocean. Currently, the Fed has a $4,5 trillion dollar balance sheet – but by decreasing this judiciously Yellen could perhaps bring the balance sheet down to around $2,5 trillion over the next four years. Of course, at some point a tightening monetary policy must have an impact on Wall Street. Inevitably, a point will be reached where the prospects are not attractive enough to justify the valuations. The problem is to know exactly when that point will occur. Right now our impression is that the S&P500 index is being driven by rising profits, especially in technology companies – but that this heralds a more diversified boom as new technologies introduce wide-ranging efficiencies to business at every level. Productivity is increasing rapidly and now consumer and business confidence is rising with it. There is plenty of room to grow because of the loose monetary policy of the past eight years. It is our belief that it will take much more than Yellen’s tentative efforts to bring this economy and market back under control. Opening Pandora’s box is a problem because it is never easy to put whatever came out back – and, if you can, it will inevitably be a traumatic experience. Here in South Africa, we can expect to benefit from the backwash of these momentous events. This means that our economy will probably begin to improve steadily, despite the ANC’s strenuous efforts to destroy it, and it will take the share market up with it. This can already be seen by the number of new companies coming to the JSE. So far this year we count 14 new companies that have listed. Listing is a very powerful statement of confidence in the future. Companies do not incur the considerable costs of listing unless they are pretty sure things are going to improve.  

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PDSNET ARTICLES

Correction

The progress of the S&P500 index of the 500 largest companies on Wall Street is important because stock markets around the world, including the JSE, tend to follow it sooner or later.

On 19^th January this year, something momentous happened when the S&P broke above its previous all-time record high

Shoprite

In their article on 10^th April 2024, Checkers sweeps Pick n Pay as it opens 5 new stores in one day., Businesstech drew attention to the fact that Shoprite had taken over five stores from Pick ‘n Pay on the East Rand. Pick

WeBuyCars

In a few days’ time, Transaction Capital (TCP) will unbundle and separately list its second-hand car sales company, WeBuyCars (WBC). The main benefit of this is to release the value of WBC into the hands of its shareholders. When the listing is complete, on 11^th April 2024, WBC will have a total of 417,2m shares in issue which are expected to

Gold and Harmony

In our last Confidential Report, published on 6^th March 2024, we drew your attention to the fact that the US dollar price of gold was about to break up through a critical resistance level at $2060. Gold has now moved up to $2166 so this observation provided an opportunity for private investors to make a significant capital gain, either in actual gold

Reverse Takeover

At the end of October 2023, Mix Telematics (MIX) was a relatively small fleet management company with a market capitalisation of just R2,3bn listed on both the JSE and the American NASDAQ. Its shares on the JSE were wallowing at a low of 380c. This compares with its competitor, Karoo (KRO), also listed on the JSE, but which was at the time, more

Rare Opportunity

You may not have been aware of it, but last week, between Monday and Friday, there was an opportunity to make an 80% profit on your capital. This opportunity occurred because of insider trading on a little known and traded share called Quantum Foods (QFH) in the poultry and animal feeds business.

Generally, the poultry business is

Excessive Bullishness

On Friday last week, the S&P500 index posted yet another new record closing high, but this time just one point higher than the previous day at 5088. This means that the index, which measures the progress of the 500 largest companies on Wall Street, has been climbing without a significant correction for nearly four months. Consider the chart:

Lessons from Transcap

As a private investor it is very important that you study what has happened in the past and learn from it. The progress of Transaction Capital (TCP) has provided us with an excellent opportunity to examine and learn from a complete cycle in an institutional favourite share. We can examine the entire cycle and see how to profit from it. In this regard, it is important

Sasol

Sasol is a company originally established in September 1950 by the National Party, to counter the possibility of petrochemical sanctions against the old South Africa. Essentially, Sasol used South Africa’s enormous coal reserves to generate about one third of its fuel requirements. Subsequently, Sasol became involved in the chemical industry which now accounts for about

4Sight

The world has, in the last twenty years, entered what has been characterised as the 4^th Industrial Revolution (4IR). It has been described as “... the biggest structural change of the past 250 years — a transformation of scale, scope and complexity unlike anything humankind has experienced before.” In simpler terms, 4IR refers to the digital convergence of