ARTICLES

The US Economy

The year-on-year core consumer price index (CPI) in America for June 2023 came in at 4,8% which is a sharp reduction from May’s figure of 5,3% and shows that inflation in America is slowly coming under control. Core CPI excludes the volatile food and energy sectors and is the Federal Reserve Bank’s (the Fed) preferred measure of inflation when considering changes to the level of interest rates. Their often-stated goal is to bring core CPI down to 2% - so they still have a distance to go.

In the current rate hiking cycle, the Fed has increased rates ten times by a total of 5% and then decided to pause at the last monetary policy committee (MPC) meeting. The MPC, however, said at that time that it envisaged that a further two 25-basis point hikes would be necessary before the upward cycle was over.

Investors now widely expect the US economy to have a “soft landing” – meaning that the rising interest rates will bring inflation under control without the economy moving into a recession. A  recession is defined as two successive quarters of negative gross domestic product (GDP) growth).

This optimism has meant that the S&P500 index, which is a weighted average of the 500 largest companies trading on Wall Street, has moved into a bull trend. Consider the chart:

The chart shows the cycle low on the S&P at 3577 on 12^th October 2022. Since then, the index has been rising steadily and the 300-day simple moving average has turned up sharply.

There are, however, two key indicators which suggest that the US economy is heading into recession. They are:

1. The Yield Inversion – The yield inversion occurs when the yield on the 10-year US treasury bill is below the yield on the 2-year treasury bill. It has been used as a signal of an impending recession in the US for many decades and it is right about 90% of the time. Usually, the US economy goes into recession about a year after the yield curve inverts. The yield has been inverted for about 12 months now, so by this measure the US economy should enter recession before the end of 2023.
   
   
2. The Leading Economic Index (LEI) – This is an index of ten components produced by The Conference Board. The Conference Board is a 100-year-old international non-profit organization of business leaders who are engaged in forecasting future developments for the benefit of their members. They produce the LEI every month and it has also been a very accurate indicator of US recessions for many decades. Recessions in America begin on average about 15 months after the LEI peaks – and certainly inside two years. It peaked in February 2022 about 17 months ago – so this also indicates that a recession is imminent before the end of the year.
   
   

In our view, it is highly likely that the US will enter a recession in the second half of this year, and we expect that recession to be longer and deeper than has generally been predicted.

One interesting observation is that while the S&P500 is now firmly in a bull trend, the JSE Overall index is not. Consider the chart:

You can see here that, following its peak at 80791 on 27^th January 2023, the JSE Overall index has been in a sideways/downward trend – indicating that South African investors are not convinced that the bull trend now in progress on Wall Street will be sustained.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11^th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale

Choosing Winners

We are often asked how we go about selecting the shares to put on to the Winning Shares List (WSL). Right now, there are 102 shares on the list with 5 having gone down since they were added, 94 are up and 3 are unchanged. On an annualised basis, 24 of them are performing at above 100% per annum.   

As a private investor,

Kore Revisited

Kore (KP2) remains at once the most exciting and most risky investment on our Winning Shares List (WSL) at the moment. We originally added it to the list just over a year ago on 16^th May 2024 at a price of 20c. It subsequently rose to a high of 83c on 3^rd October 2024 and we published an article

Rand Strength 2025

The strength of the rand is both a critical and a complex issue for private investors on the JSE. Our currency is influenced by two primary forces:

1. Our local economy’s prospects
2. The rand’s role as a leading emerging market currency

These, in turn, are

Sibanye Revisited

In these uncertain times, when nobody really knows to what extent Trump will back down on the international trade war which he has initiated, many investors are moving into precious metals as a hedge against the weakness of paper currencies (especially the US dollar) and paper assets like equities and bonds.

The problem

Smart Local Investors

The last two months have been wild on the markets – mainly because of Trump’s ill-advised, on-again, off-again tariff policies. The issue now is:

Will this morph into a full-blown bear trend? Or is this correction almost over?

From his election victory on the 6^th of November 2024,

Jerome Powell

The Federal Reserve Bank (“the Fed”) is completely outside the control of the President and Executive Branch of the US government. The chairman of the Fed is appointed for a renewable 4-year term by the President. The President cannot remove the Chair without cause. The current chairman, Jerome Powell was appointed by Trump during his first term as President and reappointed by

Uncertainty Soars

Investors are by their very nature risk takers, but they are always trying to reduce the risk which they have to take to a minimum. Donald Trump, with his threat of an international trade war and his on-again, off-again tariffs has significantly increased the level of risk in markets across the world. This can be seen in the extraordinary volatility in the S&P500

Liberation Day

Trump has done the unthinkable. He has deliberately engineered the collapse of the US and world stock markets in the nonsensical belief that somehow an international trade war will make Americans richer. Nothing could be further from the truth. His actions have taken the S&P down from its all-time record high of 6144.15 on 19^th February 2025 to Friday’s