Tag: Politics

The Confidential Report – November 2019


America

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)

Read More

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

The Confidential Report – September 2019


Political

The concerted attack on President Ramaphosa and his retinue has seen the rand fall to almost R15.50 to the US dollar. But this fall also includes and is confused with a sharp international shift to “risk-off” as a result of Donald Trump’s trade war with the Chinese and their currency retaliation, which makes it difficult to accurately assess the impact of the attacks on Ramaphosa. The best way to evaluate the importance of these attacks and distinguish them from what is happening internationally is to look at the yield of the South African government’s 10-year bond, the R186. Consider the chart:

R186 Bond May 2016 to September 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

Read More

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