I am sitting watching in awe as the Dow plummets to 6835.We are really fucked. This is going to hurt everybody. I must admit, and I have a Ph.D in this shit, I have been like a deer caught in the headlights. The scale of the devastation is enormous, and the only safe haven is gold, but of course for many it is too late. Much of the damage has been done. My heart really goes out to all those that are about to retire.
No amount of platitudes are going to make you feel any better. I have learnt that markets will remain irrational longer than you can remain solvent, and that is becoming a scary reality. This is therefore an opportune moment to revisit an earlier post of mine dated 21 November 2008, many of which probably thought it was grossly exaggerated.
On 6 October 2008, Jim Cramer, a loud mouth CNBC presenter (for those of you that have watched him on DSat), discussed the future of the DOW after an intra-day decline of 800 points.
He suggested that you revise your 5 year plan, "as a drop in the DOW to 7700 is a real possibility."
At the time I contributed to his projection by adding my 2 cents worth, which I continue to stand by and share with you below .............
"The Dow at 7,700? I partially agree, except I think it will be lower, significantly lower. I think it will settle somewhere between 5,270 and 2,550. The reasons are simple. If we take current earnings which are already on the decline, and assume they decline to 2003 levels, which is about another 30% decline, and we then use two PE ratios, the average for the last 50 odd years of 16.54 or we use the PE ratio that seemed to prevail throughout the bear market of the 1970's of approximately 8, we can recalculate where the Dow may end up. So it is not inconceivable to see the Dow decline by another 50 - 75%."
One thing that has really pissed me off, other than rebuking myself for not making what seems to have been simple decisions in hindsight, is that this whole meltdown is as a result of the USA, yet no commentators have focussed on this. It will also be a cold day in hell before they admit it too.
When folk used to ask me about my investment philosophy I always used to joke that a meltdown is nothing to fear because we would all be fucked. Well it is no longer a joke, and we all are.
13 Opinion(s):
Ag don't worry man, SA is getting the world cup. Ticket sales are going through the roof! The best election ever is coming in April, don't be so blerrie pessimistic man...
Azania has not got a clue about what's gonna hit it shortly. Think about it: RBS posted the UK's largest loss ever: £24.1 billion! That's only one bank folks. The world is in deep shit, and no party in SA is going to make any difference when the wolf comes home to feed.
VI, I watched Jim Rogers an ex-partner of the leftwing douche bag George Soros the other day being interviewed on Aus TV and he reckons these bailouts will fail and I tend to agree with him. Case in point is Japan. It had its own financial implosion in the early 90s with an inflated stock market, bad loans etc (sound familiar) and it did what govts are doing today which was to throw money at the problems. Japan bailed out banks, businesses etc and IT DID NOT WORK.
18 years on and Japan is still in the longest recessionary period ever.
Rogers reckons put your money into real things like farming, commodities, tangible things. He believes farming will become the biggest industry for the next 20 years. With ethanol and other green energy initiatives and exploding populations, that does seem to make sense.
These bailouts will fail. Fasten your seatbelts because we are all in for a very torrid ride.
I forgot to mention that now is the time to learn to grow something. The West is ill prepared to handle this, and I agree, I don't think the bailouts will work either. Japan was a failure because they refused to let the system deal with bad loans, much like the US, and then consumers stopped consuming therefore their economy never restarted. The same might happen in the US. People will start to horde what the have.
Questions to ponder in future blogs perhaps:
1. Africa became independent after the Great Depression and has sustained itself largely on foreign aid. What are the consequences now?
2. Immigration has been justified due to declining Western birth rates and sustaining economic growth. Will immigration become an issue and what are the implications for expat South Africans?
3. Where will the next Great war be, and between who?
4. Will Africa be recolonised as a result of all this?
Anybody have any other questions worth pondering?
Have you noticed how difficult it is to get Krugers on the exchange ?
The premium has gone up steadily in the last year. I agree with V.I.
that most people in the RSA have no clue of what is rolling towards us. What will be interesting to see is the time when economic realities collide with the entitlement thinking of the majority of the population. Than the will make a major leap towards Zim levels.
Whiteadder you may be correct. When I look at the precipitous collapse of exports and the stratospheric deficit on our current account, coupled with the loss of confidence, this suggests only one outcome. A dramatically weaker Rand. I don't think 14:1 is all that unrealistic this year. Then again, all bets are off, anything has become possible. What I am certain of is that SA is in for a hard landing.
Here's something I picked up on Mining Weekly this morning:
Chinese investment in resources seen 'bolder, more prominent'
By: Liezel Hill
Published on 2nd March 2009
TORONTO (miningweekly.com) –
Chinese foreign direct investment around the world can be expected to increase over the next two years, and resource-rich nations and regions will likely get the biggest share of the pie, Beijing Axis MD Kobus van der Wath said in Toronto on Monday.
Van der Wath told delegates at the Prospectors and Developers Association of Canada conference that, although the Chinese economy is currently in a period of vulnerability, growth will likely rebound by the fourth quarter of this year.
Further, he expects the surge in foreign direct investment (FDI) by Chinese firms that has gained momentum over the last three or four years to continue.
Chinese nonfinancial FDI rose to $40,5-billion in 2008, compared with just $700-million in 2001, and “the intention of CEOs in Chinese companies is to go global,” Van der Wath commented.
"Mindsets are shifting to become more bold, more assertive, and we can expect more prominent transactions and deal structures."
The mining industry in particular is attracting heavy levels of investment, he said, pointing to the recent announcements by diversified mining giant Rio Tinto and Australia's Oz Minerals, which have both concluded transactions with Chinese firms.
“As a CEO, as a member of a board, as a planner, as a fund raiser, as an investment banker, as a corporate lawyer, you need to understand that this is one of the most important trends currently unfolding in the sector.”
Countries rich in natural resources have already attracted a large percentage of Chinese FDI, and this can be expected to continue, Van der Wath said.
So far this year, upwards of 90% of FDI into Australia has been from China, compared with just 15% in 2008.
“So, for mining countries like Australia and parts of Africa, and I expect Canada, there is a higher likelihood of Chinese capital being deployed.”
NO SILVER BULLET
From a demand perspective, Van der Wath said that there has been a “profound” shift in the economic mood in China in the last six months, as a result of a sharp slowdown in economic growth.
China's GDP is only expected to grow by about five percent in the current quarter, “and it is likely to get worse before it gets better”, he said.
However, by the end of this year things are expected to be looking much rosier, and GDP growth in China is forecast at about 7,5% next year.
“China is not going to unravel, it will just be growing at a slower rate for a period of time.”
In the medium to long term, the Chinese economy remains sound, and the 'rise' of the Chinese consumer, combined with inevitable waves of urbanisation, particularly into the inland provinces, will ensure strong and sustained demand for industrial and infrastructure commodities for many years.
Still, although commodities demand from China in both the short and longer timeframe will be real enough, it will not be a “silver bullet” that solves all of the mining industry's problems at the moment, Van der Wath commented.
“And certainly not a decoupled, free-standing entity that can counter the rest of the world when it is in contraction, or an economy that can fuel and irrational super-cycle.”
@Vanilla Ice: I don't know so much that people in the US will hoard their cash forever. There is a lot of cynicism about the markets right now, but the habits of a culture are difficult to wipe out overnight. Americans were always into conspicuous consumption; the Chinese are by nature hoarders but they have also been turning into consumers.
But the problems probably won't start easing off until the fourth quarter of this year. The first two months of the year are already over - that's something.
You should really have substantial exposure in US $ in an offshore tax haven by now. I don't know if it would be wise to buy US $ when the rand gets to 14 to the dollar - remember what happened last time.
What does David Shapiro of Sasfin have to say? He likes Massmart, Shoprite, Mr Price, City Lodge, Discovery, British American Tobacco, MTN and Kumba. Let's not panic, let's look for cash returns.
Why not chill out in gold bullion in an offshore account right now? Old Mutual are not running away from their Guernsey operations yet, so why not open an OM life account invested in OMGB Aliquot Gold Bullion (USD)? You need a minimum investment of R400k to justify the upfront costs, but that's not much. A life account has advantages in that you don't need to worry about probate, and there are distinct tax advantages as well. And of course the ANC can't get their grubby paws on your money.
The first line of retreat has been into US treasury bills, but the returns on those are next to zilch. As the US starts printing loads more money, retreat into gold - but not gold mining shares, buy bullion.
Hey Doberman, just a quick reminder:
George Soros might be a "douchebag" but he's also Trevor Manuel's boss!
He runs SA'a economy for his bosses who own SA.
If anyone is a douchebag it's Alan Greenspan.
Talking about buying into bullion: it's very high risk. Buying bullion is like playing roulette. Expectations are that gold will reach $1,000, so you can make 25% probably until at least the end of the year. Unless the Russians start dumping gold, in which case are playing Russian roulette.
1. Do NOT buy gold!
Those who own the gold have more than enough wealth and you'll only increase their wealth!
2. Do NOT put your money into a major bank!
Those who own the central banks are the very same who own the gold reserves and now, thanks to the "free banks" all folding, also own any surviving major bank.
3. Create smaller "community banks" and put your money in those!
4. Create your own "local currency" which can only be used in your community - this will save you from the international depression!
5. Unfortunately, in order for no. 4 above to work, your taxes need to be spent locally only, benefitting only your own community. Don't allow other communities into your area.
6. Do NOT listen to the likes of Brown who so fear what they term "protectionism"! Protectionism will look after you and yours while anything else will only look after the very same people mentioned in 1 and 2 above!
Avoid this advice at your peril!
"One-world" is over! They went for the Jackpot just a little too soon, and now it's payback! Every little community on their own, and those who consider themselves mightier than the Almighty are finished.
Yes please!
Ok, much of the feedback has warranted a response, perhaps even a follow-up posting. Let's not get ahead of ourselves and start hording baked beans.
Prognostication is not my strength. Certain things can be predicted but not the time frame, and I am in good company, Warren Buffett agrees with me. What is certain is that the South African Rand will be under sustained pressure. What is unlikely is a reversal in fortunes. There are many reasons for this, suffice to say the US is committed to reducing its deficit and acts as a safe haven currency.
As regards Gold, I need to tread carefully here. It is always the last resort commodity you want to be holding when the shit hits the fan. The problem is defining or recognising when we have reached that status, which will not be recoverable for a long period of time.
Gold most definitely would have helped, but as I said in the posting, it is too late for many. Actual bullion cannot be purchased by most. It is only viable if you can freely trade the commodity. Gold is highly volatile and generally provides poor returns, it is only a hedge.
In closing, do not attmpt to time switches into currency or asset classes, you will see your arse. I realise that historical data has now become shakey, given that the characteristics have changed. What is different though is that risk is being over priced, basically there are bargains out there.
If you can sustain yourself for perhaps 2 years, which any good financial plan should have allowed for, and if you can continue to acquire assets, you will reap the rewards.
This is not good news for retirees though. As regards actual stocks selected by certain money managers, buyer beware. There is no evidence, and I know because I was one of the researchers, to suggest that any money managers have superior knowledge. So forget the celebrity names.
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