From Gareth Stokes, MoneyWeek editor,

Dear Money Morning Reader,

In 1958, Nigerian author Chinua Achebe published the archetypal modern African novel titled: Things fall apart. The book describes the fall from grace of an African elder as British colonialism and Christian missionaries erode his traditional values and beliefs. The ‘new normal’ on global equity markets is similarly challenging modern day beliefs about risk and return from various asset classes. Between 2003 and mid-2008 international investors were lulled into a false sense of security by seemingly linear markets. Share prices rocketed on the back of ever increasing corporate earnings and dividends.

But these short-term anomalies cannot alter the cyclical nature of markets. The business world ebbs and flows over time, going through periods of boom and bust, and can never deliver uninterrupted inflation plus returns. You’d have learnt this lesson through the global equity market collapse in the second half of 2008. And right now the markets are drumming in the message by lashing those who believe Europe can solve its problems overnight. The headlines are ominous. “Euro tanks to four-year low,” screams a Reuters-sourced article on Fin24.com. The currency slipped to its worst level against the US dollar in more than 48 months and to an 8.5 year low against the Japanese Yen. Technical analysts warn there’s further weakness to follow, and that a second collapse looms.

If you’re looking for a single word to describe the unfolding European Union crisis, it’s DEBT! Countries such as Portugal, Italy, Ireland, Greece and Spain have been wresting with massive government-induced debt overhangs, with Hungary now adding its name to the list. They too require massive financial assistance to stave off complete collapse. “Europe’s sovereign debt problems are just not going away and it’s difficult to see a light at the end of tunnel for it just yet,” notes Jonathan Cavenagh, a currency strategist at Westpac. If anything the situation is going from bad to worse!

Investors have additional concerns, including disappointing US jobs numbers, worrying comments by the French prime minister about the value of the Euro and falling commodity prices to name but a few. “Disappointment about US jobs data!” you exclaim. Have these commentators read the latest US jobs statistics? How can they be disappointed when the May 2010 US unemployment rate recovered to 9.7%? And how does an economy ‘mourn’ 431 000 new names on non-farm payrolls?

The answer is straightforward. Markets respond on expectation not performance. The US markets wanted 536 000 new jobs in May. When they got 105 000 less then expected they voted with their feet and sold shares. Kevin Lings, economist at StanLib explains further: “Since December 2007 (when the US recession officially started), payroll employment has fallen by a net 7.38m jobs, or 5.4%!” He believes the US job market will take a number of years to stage a full recovery. And that’s what bullish global investors have forgotten. The European crisis is forcing investors to dump risky assets – weighing on South African equities and the rand. We’ve lost ground against our major trading currencies (the Euro excluded) and the JSE All Share index has shed 4.83% in the last three months.

For those with a stomach for risk, there’s still plenty of opportunity. You could, for example, take a leaf out of Tom Bulford’s book and go hunting for a ‘frontier’ oil exploration company. Turn to page 16 to find out how to profit from this dirty business!

Market update

The JSE all share index slumped 1.05% yesterday. The gold mining index slipped 0.72%. Resources fell 1.56%. Banks and financials grew 1.26% and 1.16% respectively. Industrials pulled back 0.48% and the platinum mining index decreased 2.06%.

London's FTSE100 climbed 0.61%. The Dow Jones collected 0.38% and the Nasdaq closed up 1.12%.

Tokyo's Nikkei gained 1.52%. Hong Kong's Hang Seng added 0.88%.

Brent crude is currently trading at $75.24 per barrel.

Spot gold's trading at $1,230.16 up 0.22%. Platinum was last quoted at $1,554.50.

And here's how the rand is performing against the major currencies:
R/$ 7.64
R/₤ 11.2
R/€ 9.32