Dear Reader,

I’ve got good news and bad. The bad is news is South Africa Inc has continued its slide down the world competitiveness rankings… We came in 54th out of 139 countries surveyed in the latest World Economic Forum (WEF) global competitiveness index, published 9 September 2010.

Why should you care? Are you kidding! This competition is like a board of foreign investment decision makers giving us a report card. And to slip from 45th to 54th is like getting an “H” in woodwork… It opens you up to all manner of abuse. A developing African economy has to excel on every level to attract much needed offshore capital!

You see the WEF competitiveness index is a bit like the British Premier League for countries. Slipping nine places is as bad as getting kicked out of the first division. Can you imagine what would happen to Sir Alex Fergusson if his team – Manchester United – dropped nine places in a single year? He’d get fired – that’s what.

And it gets worse… Team South Africa is once again puttering around in the relegation zone. We’re about to be the Portsmouth, Hull City or Burnsley of the 2009/2010 Premier League season… Relegation looms!

Is government going to do the honourable thing by falling on its sword? Not likely! How about one or two carefully selected ministers, like those dragging us down with shocking healthcare, education and – sorry General Cele – crime fighting and corruption scores…

Trouble with government and the ruling party is they’re all untouchable. They’re not worried about the next general election, except perhaps to struggle internally for the cushiest job after voting day.

Just look at the range of “plans” being paraded in the as yet unregulated media. The African National Congress Youth League is on a “grabbing” mission not seen since our northern neighbour Zimbabwe imploded. They want to nationalize mines, expropriate farm lands and generally drive our beautiful country to the edge of ruin.

Jeez! All I’m accomplishing right now is to chase my blood pressure up. But really – us South Africans need to catch a wake up. I couldn’t believe some of the comments written by economic commentators. We’re going nowhere in competitiveness ranking tables and they cop the sorry line: “Well actually we produced a consistent performance – we slipped because other countries performed better…” It’s insane!

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Snatching a single stunning victory from the jaws of defeat

And now for the good news. Although we slipped on nearly every measure of competitiveness through 2010, we managed to bag a single gold medal.

South Africa was number one in the world for auditing and reporting standards. It’s a slow and steady improvement from fourth in 2008, to second last year – and finally to the top rung of the podium.

I’m both impressed and amused. If our auditing and reporting standards are so fantastic why are we slipping in the global corruption stakes? I mean a country with the “best” reporting tools in the world should be producing conviction after conviction of corrupt government officials. But it’s not happening.

But we digress. The A+ we received for various monetary and financial aspects means big money is still flowing to our shores. "SA attracts its fair share of portfolio or hot investment but we’re not attracting enough fixed investment," says Kevin Lings, economist at Stanlib.

He’s right. The “good” capital isn’t coming to South Africa because of our poor performance in critical areas such as education, healthcare and infrastructure development. I can’t think why an international company would want to put its shareholders at risk by making a huge property investment in our country given the ruling party’s recent rants.

It’s like saying – invest here – build your empire – and in a couple of years we’ll change the laws to take it away from you! You can’t attract foreign capital if you’re going to restrict land ownership rights and begin making noises about more rigorous foreign exchange controls.

Besides, nobody backs a loser! Why take your company to South Africa – a team floundering in the relegation zone – when you could go to Vietnam (up from 75th in 2009 to 59th this year), Montenegro (13 places higher at 39) or Mauritius (clawing two places higher to 55th)?

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Enough – this negative reporting is killing me!

Sorry dear reader. Without thinking too much I’ve committed one of South Africa’s favourite modern day sins. I’m guilty of whinging – one of those “pack your bags and leave” offences…

Before I do anything drastic I’m going to atone for my sins by offering this “blue chip” profit opportunity. The praise heaped on South Africa for the disciplined regulation of its securities exchange is bound to receive international attention. I expect international investors will more readily move their short-term funds into local equities.

And when they do they’re going to be making use of the services offered by the JSE Limited (JSE: JSE). The company, already on the front foot thanks to the economic recovery, will shoot the lights out as short-term cash flows into our markets. I don’t care if this is the “wrong” type of investment – it’s going to do wonders for the JSE’s bottom line – and I’d be buying the share today on a three year view.

As for the WEF competitiveness survey – we’ve got our work cut out for 2011. According to Lings our problems stem from an inability to implement policy. "For example, it does not help to have a great education policy if you can't get the textbooks to the schools before the first day of school," he said.

If we want to climb back into the middle of the premier league we’re going to have to get tough and address our many failings. We ranked 97th for labour market efficiency, 109th for education, 135th for inflexible hiring and firing practices and 137th for crime and violence…

A country cannot remain competitive when it harbours so many contradictions. How, for example, can we have among the most militant labour unions in the world, and an unemployment rate well in excess of 25%? And how can we be applauding the police for reducing crime when the murder rate – each year – exceeds the number of people killed in a war zone such as Afghanistan?

This is Gareth Stokes signing off... Until next time.

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A technical Exercise on the Dow Jones from Kevin Wides - www.atlasmacrotrading.co.za

We are reviewing the clearest technical development on the DOW JONES ,a potential Head and
Shoulder .We will look at some basic features that give the best results for this type of chart pattern.
(This is purely a technical exercise)

“You can have your own opinion but not you own facts”... Chen Zhao, BCA

Dow Jones Daily (with volume in pink)

The markets are fooling just about every analyst and investor at the moment; we think some objective
assessment of technical developments we have been looking at is warranted:
SO, is the Head and Shoulder pattern still valid?
Here are some great stats/facts from the “Encyclopedia of chart patterns by Thomas N Bulkowski” .Let’s
rate the current DOW JONES potential H&S pattern based on features that give the best results .We will
rate the current features from -POOR - FAIR -to STRONG.
Below are 5 features that give the best results, according to Bulkowski.

1. The steeper the H&S the more chance of success. – FAIR to STRONG (The Head is very steep, but the shoulders are less so.)
2. ‘There must be symmetry, especially between the two shoulder and their relationship in time to the head’ – We get a STRONG symmetry. We have the left shoulder developing over 94 days, and we are currently at 74 days for the right shoulder. (This implies that we have at most 30 days for the market to peak and fall to the 9400 area to complete the right shoulder, which is not an unprecedented fall). The Head was formed neatly, it took 78 days from the Feb low of the left shoulder to the April high of the head, and then 72 days back down to the new low in July to finish the head formation and start the right shoulder formation – so 78 days against 72 is very clean. These 2 lows - Feb & July-thus created the downward sloping neckline. The left shoulder is clear to see framed by the vertical lines. (94 days from low to low) I have also put in a vertical line to show the time for the right shoulder to end.
3. ‘Downward sloping necklines in a bear market are the best performers’. - STRONG
4. ‘The right shoulder peak is better when it is lower than the left shoulder peak’ - FAIR to STRONG. The left shoulder peak was 10729, and thus far the right shoulder is 10719.
5. ‘Volume is best when highest either on the left shoulder or head and lowest on the right shoulder’. – STRONG (easily seen in pink bars on the graph).

So this current pattern gets overall a pretty strong rating, but waiting for confirmation is rule number
one. If the rally gets past 10850 and lasts till the end of the month the pattern begins to weaken.

A break of the neckline , which will be around 9350 by mid-October, due to its downward slope gives a
target of 7706 –That’s the count, which comes from the height of the head- 11258 to 9614- is 1644
points; thus 9350 minus 1644 = 7706.

From an Elliott wave analysis the fall to 7706 would be a Minor wave 3-, the strongest wave in the
series!

In the graph below I have manually added in the best picture to show how well balanced the formation
is and will be if it follows the above criteria from a high in the next few days to the potential collapse
into late October through mid-November .Bulkowski noted that in a bear markets the fall generally
completes within 41 days of breaking the neckline.

The fall would be -27% from today’s levels, 10500 to 7706 in 74 days. In 2008 in minor wave 3 the DOW
lost 33.7% in 63 days. (Noted in red on the graph).

To sum up: It would be a text book pattern.
Please be aware this is purely a technical exercise, and the fundamental catalyst for this type of move
could be anything, likely something unexpected. But as of today this is not a base scenario to invest in,
as there is no conformation.

For more insight on other market developments please go to http://www.atlasmacrotrading.co.za

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