*One last flutter before the flat-line

From Gareth Stokes, MoneyWeek editor, SA

Dear MoneyMorning reader

What was your response to the surge on global equity markets last week? Did you join the throng of ecstatic market commentators as they buried the bear – or did you smile knowingly as the term “dead cat bounce” flitted through your subconscious? Considering a leaked memo from ailing Citibank triggered the recovery we hope you answered the latter. The financial doctors consulting to the world’s major developed economies have run out of options. They’ve shocked the global financial systems with liquidity injections, expensive bailouts and repeated interest rate cuts to no avail… And we fear the recent flutter is the last before the patient flat-lines!

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We’ll leave it to US Federal Reserve chairman Ben Bernanke to explain. He recently told CBS that he only cares about equity markets “because what happens on Wall Street matters to Main Street.” Of course what happens on Wall Street largely reflects hometown USA. As millions of US consumers join the unemployment line the world’s largest economy faces further pressure. Real disposable income will slide – knocking consumer demand – and sending manufacturing and retail sales numbers further into the abyss. The market pundits who crow about the improvement in January retail numbers (contracting by only 0.1% against the 0.5% forecast) forget this was achieved on the back of price reductions as corporate giants try to slash inventories.

Things are pretty dire in the UK too. UK based trade union TUC warns there are “10 jobseekers for every vacancy advertised” in that country. Some doomsayers believe there’s a chance of social unrest as joblessness reaches unprecedented levels. And in Japan the latest manufacturing data confirms the economy has about enough strength left to muster a final wave goodbye. We don’t think the foundation for a corporate recovery is in place yet. But Bernanke remains upbeat. “We’ll see recovery beginning next year!” he says, adding that the only condition is the world banking system must be saved.

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He forgets that the  problem goes beyond banks. General Electric – a proxy for the state of the US economy if ever there was one – cut its latest dividend by 68%. Desperate to maintain its coveted AAA credit rating the group has blown a consistent dividend record going back to the Great Depression! In this week’s feature, Cris Sholto Heaton warns of more to come. Turn to page 20 to find out what else is lurking on GE’s balance sheet. Local investors are no stranger to the dividend cut. It began with Anglo American; but a string of blue chips have followed suit.

The good news story this week is the rand! The local currency staged one of its uncanny rallies despite a raft of negative economic data. It clawed back 7% against the US dollar in just three days – and repeatedly eyed R9.85 before resting nearer the R10 level. That’s a big “up yours” to Moody’s – one of the world’s most respected rating agencies – which placed South Africa’s “local currency government rating on downward review” recently. Will the rand survive increased pressure on public finances, concerns around economic policy, dire balance of payments situation and poor growth prospects in 2009? We’ll tell you in 12-months time!

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Turning to the markets...

The JSE all share index closed up 1.62% on Friday. The gold mining index fell 0.4%. Resources gained 2.66%. Banks and financials lost 2% and 0.02% respectively. Industrials rose 1% and the platinum mining index surged ahead 4.7%.

London’s FTSE100 closed up 0.68%. The Dow Jones plunged 1.65% and the Nasdaq tumbled 1.77%.

Tokyo’s Nikkei closed 2.14% up. Hong Kong’s Hang Seng climbed 2.73 %.

Brent crude is currently trading at $51.90 per barrel.

Spot gold’s trading at $951.27 and platinum was last quoted at $1,103.

And here’s how the rand is performing against the major currencies:
R/$ 9.56
R/£ 13.86
R/€ 13.06

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