To my mind

Finweek English Edition - - Front Page -

IS THERE LIGHT at the end of this dark tun­nel? That’s a ques­tion for which every­one is fran­ti­cally seek­ing an an­swer – though they can’t even agree about just how bad things re­ally are. Economists, no­to­ri­ous for al­ways cov­er­ing the en­tire spec­trum of pos­si­bil­i­ties, are more than ever liv­ing up to that rep­u­ta­tion. That doesn’t help in­vestors much when they try to make sense of the cur­rent eco­nomic cli­mate, which shows lit­tle re­sem­blance to what’s been writ­ten in text­books over the decades. Even the holy grail of mar­ket forces has been turned on its head by un­prece­dented bail-outs – in ef­fect, na­tion­al­is­ing some of the world’s lead­ing banks.

This con­fused state of af­fairs has forced an­a­lysts and mar­ket com­men­ta­tors to re­sort to strange “in­di­ca­tors” to pro­vide some in­di­ca­tion of con­sumer sen­ti­ment and the state of the econ­omy. One of those barom­e­ters, the so-called lip­stick in­dex – dreamed up by cos­metic house Estée Lauder chair­man in the 2001 re­ces­sion – doesn’t work for what’s cur­rently hap­pen­ing in the world. Those who sup­port that in­dex say the sales of lip­stick in the dark days of 2001 in­creased by 11% in the United States, ap­par­ently be­cause women who had no money for lux­u­ries con­soled them­selves with a new lip­stick. The the­ory is fur­ther “sup­ported” by the claimed 25% in­crease in cos­metic sales dur­ing the Great De­pres­sion in the Thir­ties. How­ever, sales of lip­stick fell in the US last year, in tan­dem with the econ­omy – per­haps an in­di­ca­tion con­sumer con­fi­dence is now in­deed lower than in 2001.

Other ex­tremely un­sci­en­tific in­di­ca­tors quoted by so-called an­a­lysts in­clude the length of women’s dresses: the shorter the dress, the more op­ti­mistic the con­sumers and the mar­kets are in a bull phase. On the other hand, so the the­ory goes, dresses lengthen in a pes­simistic mar­ket.

Se­ri­ous an­a­lysts will pre­sum­ably dis­par­age such flip­pancy. Un­for­tu­nately, com­ments by highly re­garded mar­ket an­a­lysts are now so wide-rang­ing that in­vestors try­ing to make sound in­vest­ment de­ci­sions are left vac­il­lat­ing. They aren’t even in agree­ment on whether SA is go­ing to es­cape a re­ces­sion or not. In ad­di­tion, the favourable rat­ing ac­corded to SA’s banks, be­cause – un­like the sit­u­a­tion in the US, Bri­tain and other lead­ing coun­tries in the de­vel­oped world – they haven’t been con­tam­i­nated by the sub-prime cri­sis and other ir­re­spon­si­ble be­hav­iour has been crit­i­cised as too high by some ob­servers, al­leg­ing ar­ti­fi­cial sup­port by lo­cal in­sti­tu­tional in­vestors who don’t have many other op­tions when in­vest­ing their clients’ money.

Add to that price:earn­ings mul­ti­ples – which no longer seem to be a re­al­is­tic in­di­ca­tion of what to ex­pect from com­pa­nies – and no won­der in­vestors bom­barded with such con­fus­ing sig­nals feel they don’t have the fog­gi­est no­tion of how to plan for the fu­ture.

That un­cer­tainty, the con­se­quence of an al­most all-en­com­pass­ing lack of con­fi­dence in the mar­ket, is even caus­ing the shares of well-run com­pa­nies (which, among other things, are cash-flush) to col­lapse. Seek them out. They’re the ones that stand the best chance of emerg­ing un­scathed. Ex­actly when seems to be a ques­tion that will keep com­men­ta­tors oc­cu­pied for some time to come.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.