STANLIB's Weekly Focus 08 December 2008

Market weekly

No Place to Hide

• Unless you’ve been invested in US dollar cash (or preferably yen cash) since July, there has been no place to hide. However, even in dollar cash your timing needed to be good because the dollar lost 17% versus the euro between July 2007 and July 2008.
• We’ve checked with some of the best bond managers in the world and, despite strong government bond markets of late, they’ve all lost money for their clients because of dramatic currency moves, dramatic losses in corporate bond values, high yield bond values and in mortgage bond values.
• No fund manager alive today, including Warren Buffett, has ever experienced or witnessed what we’re seeing today, such as the 3 big US car manufacturers (GM, Ford, Chrysler) literally groveling before the US congress for their very livelihood.
• According to Bloomberg, the S&P 500 Index has either risen or declined by an average of 3.9% per day during each of the past 50 sessions. This is the most volatile it has ever been in its 80-year history!

Any Hope?

• There is a reasonable chance of a good rally enfolding. We may see the dollar weaken, resource prices recover some of their losses and global share prices rallying strongly.
• In the US it appears that a rescue package is imminent for the 3 big car manufacturers and Obama stressed in his weekly radio address that a massive spending package is urgently needed.
• Whether the rally, should it unfold as thought, turns out to be a rally in an ongoing bear market or whether we’ve actually already seen the lows, no-one will know until later.

Economic weekly

• Interest rate cuts continued around the globe last week, as policy makers struggle to cushion the impact of the recession, as well as prepare the basis for a recovery. The Bank of England cut their rate by a further 100bps to 2% as expected; the European Central Bank cut rates aggressively by 75bps to 2.5%; Sweden’s Riksbank cut by 175bps to 2% and the Reserve Bank of New Zealand cut their rate again by 150bps to 5%.
• The US Federal Reserve is expected to ease their rate again at their next meeting on the 16 December, and market consensus locally is for the SA Monetary Policy Committee to lower our Repo rate by 50bps, taking it down to 11.5% and Prime to 15%.
• More evidence of the US recession came with the shock November employment numbers. During the month 533 000 jobs were lost, which leaves the total jobs lost this year at a staggering 1 870 000!
• The South African Reserve Bank releases its Quarterly Bulletin tomorrow, which will hold a lot of valuable data regarding the health of the economy and of the consumer. The current account deficit is expected to come under a bit of pressure in the short term; however hopefully consumer debt levels are on a meaningful downward trend.
• On a more positive note, last week saw the largest petrol price decline ever recorded in SA; and our chief economist Kevin Lings recently visited investors in London regarding Sub-Saharan Africa, and against the backdrop of the ongoing credit crisis offshore, Africa still has plenty to offer!

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