Tough times tough decisions

From Gareth Stokes, MoneyWeek editor, SA

Dear MoneyMorning reader

When MoneyWeek SA launched in June 2007, the economy was booming. You could pick a winning share by throwing darts at the business section. This market driven euphoria gathered momentum through 2008 as the JSE surged to record highs on the back of commodity prices. But then the wheels came off and recession hit. One after the other, Western superpowers succumbed to the icy grip of recession, before, in April 2009, Statistics SA confirmed the diagnosis for South Africa. Recession isn’t good for any business, but it’s particularly tough for a weekly economic digest trying to claw market share from well-established competitors.

Against the backdrop of dwindling advertising revenue and surging printing costs, the team at MoneyWeek SA had to decide whether to forge ahead with its “boom times” business plan or change tack to accommodate the economic environment. Winston Churchill, British Prime Minister during World War II, once said that “a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”. The optimistic solution was to replace the print edition of MoneyWeek SA with a weekly online publication from 3 July 2009. As a loyal subscriber, you’ll still benefit from the cutting edge international economic content you’ve become accustomed to. We’ve also made sure that the final instalment of MoneyWeek SA print edition – Issue 100 – is full of the economic and investment articles you’ve come to enjoy. As an added development, we’re also now live on twitter, so go check us out for up to the minute news and views...

More than a year after the United States entered recession, the big debate remains the timing of the global economic turnaround. Local analysts say the leading indicators point to an imminent turnaround – even a recovery already underway. But a recent Sapa/AFP article published on www.businessday.co.za would have you believe otherwise. “World economy headed for another crash,” they warn, pointing to recent comments by respected US forecaster, Harry S Dent. His doomsday predictions include a continuation of the market rally till late in 2009, a second banking system collapse and the bottom of the long-term bear market in 2011! Should we believe him?

The good news is, Dent’s views fit squarely in the “outlier” or “contrarian” category. But there might be some substance to his theory. To find out more, our UK editor, John Stepek, invited a team of international experts to take part in the regular MoneyWeek Roundtable discussion.

Domestic economic data suggests investors may be ploughing back into equity markets too soon. Household consumption expenditure declined by 4.9% quarter-onquarter, the worst rate since 1980, while trade statistics point to an alarming slowdown in the country’s vital export sector. The rather dreary economic data will probably prompt Reserve Bank governor, Tito Mboweni, to announce yet another interest rate cut at the end of June. There are concerns. Higher oil prices and larger than expected hikes in regulated services could put the brakes on recent inflation improvements and claw back gains in disposable household income. As for surviving the recession, Dent reckons the best place to do so is in Australia. We think he’s dead wrong. We’d rather survive the tough times in South Africa!

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Turning to the markets...

The JSE all share index closed up 0.71% on Friday. The gold mining index lost 0.33%. Resources gained 0.16%. Banks and financials climbed 3.09% and 1.89% respectively. Industrials edged up 0.70% and the platinum mining index rose 1.61%.

London’s FTSE100 closed down 0.27%. The Dow Jones shed 0.40% and the Nasdaq added 0.47%.

Tokyo’s Nikkei closed 0.17% up. Hong Kong’s Hang Seng 0.30%.

Brent crude is currently trading at $68.50 per barrel.

Spot gold’s trading at $937.10 and platinum was last quoted at $1,195.50.

And here’s how the rand is performing against the major currencies:
R/$ 7.94
R/£ 13.09
R/€ 11.14