I am confused! Some would say not for the first time, but at least I am honest about it. Here we are in an extremely volatile market where the only people having fun are the traders, and let’s face it only the good ones at that.
The worlds most intelligent financial minds are at a loss as to the actual trigger or ultimate result of this volatility. We are now all told it’s down to less than financially deserving individuals receiving home loans and credit from banks and other finance houses, who forget their fundamental principles simply to chase profit. Well now those little chickens are coming home to roost, only to find their nests have been repossessed!
So it’s the same thing all over again, “Fear and Greed”, fear of missing out and greed in believing one stupid idea will continue for ever without someone shouting “The King has no clothes!” In 1987 the housewives choice changed from recipes to stock picking, resulting in a poorly market shedding a few pounds very quickly. 2000 saw the information highway hit major road works and PE’s of 200 were the new paradigm, no boys it was “fear and greed!” There have been many such F and G moments in the markets and I swear there are probably a few bubbling to maturity as I write this, China, the yen, corporate America and anyone or thing that ignores FUNDAMENTALS.
We are all very lucky, however, as in South Africa a sub prime issue cannot happen because … because what? The government introduces an act, the Credit Act, an act they must know will not endear themselves to their support base, but will protect them. That took some guts, but guess who fought it and who tell us they are still fighting to get it changed, off the record of course, THE BANKS. Yes those bastions of financial security and stability, who have been quoted throughout this sub prime debacle telling us that, “It can never happen here.”
So our own banks don’t want an Act that would make it very difficult for a sub prime problem to happen here. That is despite having seen the decimation of thousands of families, homes and jobs in the US, Lehman Bros alone laid off 1200 just from its sub prime division. Why? Well it’s the alter of profit again isn’t it, they are cleverer than the US, they are smarter than the Harvard University guys who lost $500 million in a hedge fund that owned securitised sub prime loans, personally I think not.
Let’s step back and take a deep breath, let’s simply look at FUNDAMENTALS. Companies with great management teams, capital, a good business plan and a fair rating deserve our support, the JSE and many other exchanges have many such companies. The banks, well they make enough money in SA to justify most of them being potential prey of the international banks. We need their help to apply the Credit Act and make SA financially credible, not looking for a way to find a way to extend credit to those who simply cannot afford it, regardless of skin colour, education or socio economic group!
So, confused I remain, but I know whatever short term impact the Credit Act has we must get used to it. We must realize it simply takes us back to more conservative days, days when people knew that bundling up rubbish into larger piles and gift wrapping it did not change what it was, namely securitised rubbish!
To the banks globally I say, “Physician heal thyselfâ€, the rest of us know fundamentally when something is right!