From Gareth Stokes, MoneyWeek editor,

Dear Money Morning Reader,

Recent stock market gains will quickly disappear if earnings don’t come to the party. An earnings underpin is essential for current high stock valuations. Thus the major concern for stock market investors is whether we’ve seen the worst – in terms of results – from companies operating in the mining, finance and retail sectors? Analysts are upbeat; but MoneyWeek SA has some doubts.

You need only consider full year results from furniture retailer JD Group to understand our concerns. The company reported an 85% slide in full-year diluted headline earnings per share earlier this week. JD Group’s  results point to an ailing consumer. Improvements in net disposable income thanks to higher wage settlements and interest rate cuts have been offset by rising unemployment. Ailing consumers hit retailers like JD Group on two fronts. On the one hand existing credit customers struggle to make repayments adding to the bad debt overhang, while on the other, prospective customers struggle to raise finance – denting revenue! In the year to August 2009 JD Group experienced a 23.5% spike in bad debt charges, rising from R898m a year ago to R1.1bn today. In total the group has ‘lost’ R2bn to overburdened consumers in just two years!

Mining companies could produce disappointing results for FY2010 too. If you follow mining production numbers you will already know that local production remains on the slide. Data released last Thursday points to a further 6.2% decline for September 2009 – with total volumes down 15% year-on-year. Platinum group metals, which account for 27% of total domestic mining production, declined 27.7% monthon- month too. Future production increases will hinge on improved industrial demand and commodity prices. Analysts expect basic commodities like iron ore (+15%), copper (+27%), nickel (+25%) and coal (+23%) to be the best performers through 2010.

Can you bank on further monetary policy intervention to bolster economic performance? Instead of wondering whether the South African Reserve Bank (SARB) will cut interest rates in response to declining earnings you should be asking whether such a move will make any difference. Lower interest rates will have limited impact on an economy beset by unemployment and rising input costs!According to Statistics SA we’re exiting recession with more than 700,000 ‘new’ unemployed. And Eskom wants to hike electricity prices by 45% per annum in each of the next three years. If the state power utility gets its way many local industries – most notably mining companies – face an uphill battle for survival.

You shouldn’t be surprised to learn that management and shareholders are turning to government for help. Unfortunately the ruling party has its own internal quarrels to deal with. Alliance partners held a recent three-day summit to thrash out some of the major issues. The good news for investors is Minister of the Presidency Trevor Manuel is now firmly entrenched as chair of the National Planning Commission despite concerns the left-leaning Cosatu and SACP would overturn his appointment. The bad news is the alliance is gearing up to “review and broaden” the mandate of the SARB.

If you want to sleep easy through economic and political turbulence then gold is a sensible investment alternative. The precious metal has finally woken from its slumber – surging to highs in excess of $1,130/ounce. In the feature story MoneyWeek's gold bull Dominic Frisby reveals “why gold is the best way to protect your wealth.”

Turning to the markets...

The JSE all share index traded closed down 0.48% on Friday. The gold mining index traded up 1.5%. Resources fell 0.4%. Banks and financials slid 1.07% and 0.66% respectively. Industrials plummeted 0.48% and the platinum mining index firmed 0.36%.

London’s FTSE100 closed down 0.31%. The Dow Jones slid 0.14% and the Nasdaq decreased 0.5%.

Tokyo’s Nikkei closed 0.54% down. Hong Kong’s Hang Seng climbed 0.55%.

Brent crude is currently trading at $77.93 per barrel.

Spot gold’s trading at $1,162.91 and platinum was last quoted at $1,465.50

And here’s how the rand is performing against the major currencies:
R/$7.56
R/£12.49
R/€11.28