Tag: International

Wall Street Analysis


Private investors in South Africa should always keep their eye on what is happening on Wall Street – because the long-term trends on stock markets around the world, including on the JSE, begin there. As the old saying goes, “When Wall Street sneezes, the rest of the world catches a cold”.

The S&P500 represents the weighted average movement of the 500 largest companies trading on Wall Street and we see it as the most useful index for establishing what is happening in that market.

We all know that the S&P500 is in the throes of a great bull trend – one which has been going on for more than ten years which makes it a record as far as bull markets are concerned. That bull market is being driven by three major forces:

  1. The massive monetary policy stimulation which occurred in the decade following the sub-prime crisis of 2008.
  2. The fall in oil prices in 2014. While the oil price has recovered somewhat, it is nowhere near where it was in March 2012 – when North Sea Brent reached $120 per barrel.
  3. The massive advances in technology which have and continue to introduce new and profitable efficiencies in the way that business is conducted.

You should also bear in mind that the low oil price has kept inflation rates very low world wide – despite unprecedented quantitative easing and very low interest rates. Central banks have been able to maintain low interest rates precisely because inflationary expectations have remained very modest. Read More

The Confidential Report – August 2019


The Rand

For most of June and July this year, the rand was strengthening as international investors became more confident of the reforms which the Ramaphosa administration was implementing. Now the battle between Ramaphosa and the Public Protector has become sufficiently aggressive and dangerous to unnerve international investors – causing some of them to withdraw their funds from our government bonds with the result that the rand has fallen 7,5% in the last two weeks.

The yield on our R186 long bond has increased by 6,3% to 8,46%. Overseas investors are now willing to forgo this relatively high return because of the increased political risk in the country. Clearly, this trend is not good for South Africa or private investors. The fight within the ANC comes on top of the problems of financing Eskom and lower tax collections to indicate that the government deficit is probably going to widen substantially. Moody’s is under mounting pressure to follow the other ratings agencies and downgrade us to sub-investment.

Unfortunately, it is very difficult to ascertain exactly what is happening behind closed doors. We can only watch the markets, especially the rand and the yield on the  R186 for clues – and right now the news on that front is not good. The markets are communicating that there is a chance that Ramaphosa might lose his position of power in the ANC – and if that happens then the economy and the stock market will be in dire straits.

A new concern has arisen with RMB’s John Cairn’s saying that there is a high probability (47%) that the rand will fall by as much as 30% or more once the US begins a new cycle of reducing rates over the next year – simply because it always does that when interest rates are falling in the US. Against this, it seems that the recent cut in rates in the US is just a “mid-term adjustment” and not the beginning of a new trend of lower rates. Read More

S&P500 Going to 3506


In December 2016 we wrote an article on the use of a Point and Figure (P&F) horizontal count to forecast the future of the S&P500 index. At the time, the S&P had been in a long sideways pattern which made a good horizontal count possible once there was an upside breakout. In our article, we published this P&F chart to explain the count:

First Horizontal Count – Point and Figure Chart of the S&P500 Index 2014 to 2016 – Chart by MetaStock

P&F is a one-dimensional chart (it has no time dimension like normal charts) so this chart shows data from November 2014 to December 2016 which enabled a horizontal count of 9 and predicted that the S&P would rise to 3027 from its position at the time of just below 2200 (i.e. a 38% rise). Read More

The Confidential Report – July 2019


US Economy

The US economy has been expanding for 121 months – a new all-time record. This persistent growth over such a long period of time has seen the unemployment rate drop to just 3,6% – its lowest level since the 1960’s. And that growth is being followed by a strong bull trend on the S&P500 which is now in its 11th year (it started in March 2009). Economists in America are asking questions:

  • How long can this go on?
  • With unemployment so low, why is inflation below 2% (it was 1,8% in May)?

Economic theory says that once the economy reaches “full employment”, usually defined as somewhere when the unemployment rate drops to between 4% and 5%, then wages will begin to rise leading to inflation. But the average wage in America is remaining stubbornly low. Economists are at a loss to explain. Read More

New Gold Bull?


Gold is the ultimate hedge currency. Its purchasing power has not really changed significantly throughout the 5000 years of recorded human history. One ounce of gold would buy you roughly the same number of chickens today as it would have bought you in Egypt in 3000 BCE.

So, traditionally, gold is a hedge against the weakness of paper currencies – and indeed of all financial assets. The problem that gold has is that it does not give any kind of return. An investment in gold does not pay rent, interest or dividends and it does not add 10% to its weight every year. For that reason, the most secure financial assets, like the 10-year US treasury bill always seem preferable because at least they have a yield per annum of around 3%.

Over the past ten years, in a desperate effort to overcome the impact of the sub-prime crisis and avert the “great recession” the governments of the world, and especially the US government, have printed and injected more than $12,5 trillion into the world economy (through “quantitative easing”). That additional cash has not resulted in rising world inflation, mainly because of fear and low confidence levels. At the same time, the sharp fall in the oil price in 2014 has kept world inflation at very low levels. Read More