Financially Speaking January 2009

“Effective people are not problem-minded; they’re opportunity-minded. They feed opportunities and starve problems.”

Dear Client,

2009 is a month down already. Everyone is asking “what will the year bring?” The Reserve Bank holds their monetary policy meeting next week and it is widely expected that they will reduce interest rates by a full 1%. The stock markets of the world are trying to recover. Our generation has now seen that Banks do go under and therefore a bank deposit is not without risk. I always say; every type of ‘storage’ of money has its risk. I know of someone who keeps all their money in cash in a box in their house. The risk here is theft and fire.

Investment issues…

Yesterday I listened to two fund managers from Coronation Unit Trusts. One of the very interesting slides that they showed illustrated an aspect about the dramatic reduction in global spending that we are experiencing, that I have never thought about or heard before. It was a slide showing the Baltic Dry Index, which reflects the shipping rates. In English, it showed how the demand for new ships was rising dramatically only two years ago, largely due to huge demands by countries such as China for raw materials for manufacture because of global demand and spending at that time. From October last year, the graph drops almost vertically down and decreases by about 95%. This means that there are now a bunch of ships that have been made or are still under construction but there is no longer the demand for them. So there are ships with nothing to do and nowhere to go. Interesting stuff that most of us don’t get to hear or think about.

On the issue of the value of the markets, they believe that a lot of bad news is already priced into the markets and even if company earnings continue to drop a bit more, this is probably already priced in, meaning that share prices won’t necessarily drop in line with the earnings reduction.

Another interesting point he spoke about, was how many people who are sitting with a lot of cash, will say that wouldn’t it be better to wait until things clear up a bit and current uncertainties are resolved. He asks does this investor wait for, what, 10 consecutive days of rising markets of say 2% per day before going back in? This investor has missed the first 20% already.

“Uncertainty actually is the friend of the buyer of long-term values.” (Warren Buffet)

Additional Retirement Annuities Contributions:

A reminder that any additional contributions to your RA for the current tax year, must reflect in Allan Gray’s bank account in the current tax year. To be safe, try to have the deposit done by about the 24th February so the paperwork can also be tied up in the tax year.

Allan Gray have gone the extra mile this year and pre-populated an additional contribution form for each of my clients with a RA with them. So I have forms ready for any client.

Until next time

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.