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2009
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PLUNGING DOWN SOUTH TO THE
BIG FREEZER
"This is your Captain
speaking … we have a 10 metre [35ft]
swell on the Starboard beam driven by a 50 knot South-westerly
wind. Conditions are going to be rough – so please
take all precautions to secure yourself and your personal
items in your cabin".
That was the news
that greeted my wife and I within hours of boarding
the "Akademik Shokalskiy", a 65 metre Russian
ice-breaker, on 31 December 2008 for our "once
in a lifetime" expedition to Antarctica. We had
planned and saved for the trip for ages – but
nothing could have prepared us properly for the dreaded
"Drake's Passage" and its notorious fury.
Out of 43 passengers – less than a handful made
it to breakfast the next morning … but we all
survived the ordeal, one way or another and arrived
at the Antarctic Peninsula a few days later.
 The
most stunning scenery imaginable, amid calm silvery
waters, greeted us each day as we explored the last
truly unspoilt Continent on Earth. Penguins, seals,
whales, orcas and a wide variety of sea birds entertained
us. None exhibited any fear of us in our brief intrusion
on their daily lives.
Why start an end of Tax year newsletter
with a story about a trip to Antarctica? The parallels
are there if you look for them. 2008 was more than a
rough Drake's Passage for those of us invested in the
equity markets. The unprecedented plummet "South"
by the World's share markets precipitated the present
"freeze" in economic activity. Global markets
remain in "turbulent waters", with the problems
of the credit crunch now "spilling over" into
the broader economy – from Wall Street to Main
Street. All the major economies are now in recession,
with certain sectors of our domestic economy also deep
in the red [new car sales have reached 8 year lows].
South Africa ended the 4th quarter of the calendar year
with negative growth and the 1st quarter of this year
is likely to be the same, confirming that we too will
officially be in a recession.
Globally, billions of Dollars have
been pumped into the various banking systems in an attempt
to get credit flowing again. USA car manufacturers are
receiving "bail-outs", many of our mining
companies are in trouble. Daily accounts of job losses
and troubled businesses "swamp" the News Broadcasts.
All pretty frightening stuff to have to contend with
while our decks are awash and the temperatures continue
to decline.
Interest rates have been cut aggressively
across the globe. In the United States, interest rates
have fallen to between 0% and 0.25%, leaving the Federal
Reserve little more ammunition on the interest rate
front. Similarly, in the United Kingdom and the Eurozone,
rates are currently down at 1% and 2%, respectively,
with further cuts not being ruled out. At home, our
Prime Rate has been reduced to 14%, leaving the SARB
with a lot more room to cut rates in the coming months.
Our Forward Rate Agreements [FRA's] traded locally have
priced in a cut of up to 4% in interest rates by the
end of this calendar year. Great news for borrowers
– but little joy for pensioners!
Enough of the depressing stuff I say,
let's return to the Antarctic trip! Just as we all made
it through "Drake's Passage" – so too
will we make it through the present economic storm.
None of us jumped ship at the height of the storm -
or we would surely have perished. Bailing out of your
investments, turning back on your long-term investment
strategies will only deprive you of the benefits of
staying the course.
 The
inauguration of President Barack Obama on the 20th January
provided a beacon of hope to many [both in the US and
internationally] who believe that he is the best person
to tackle the unenviable job of getting the US economy
back onto its feet. It is still the world's largest
economy by far and seems set to begin the recovery ahead
of the UK and Europe. I have every confidence that he,
along with Gordon Brown and his European counterparts,
will drag the Earth back from the precipice as depicted
in this graphic commissioned by Coronation Fund Managers
and reproduced here with their permission.
Investors often ask whether or when
it is a good time to buy into this kind of market. One
of Warren Buffet's rules for investing is to “be
fearful when others are greedy and greedy when others
are fearful.” Of course he says this knowing that
most investors are inclined to do exactly the opposite
– retreating to cash when the crash has already
happened and climbing into the markets when the next
boom is well down the course. With the benefit of hindsight
it is always easy for the protagonists of "market
timing" to demonstrate how well they "could"
have done by picking the historic lows and highs to
prove their points of view – but in reality building
a strategy around timing the markets with all the uncertainties
of the future is most unwise. No one can predict the
date and time of the next low point or the next high
point – so the Warren Buffet's of this world don't
bother their minds with this futile exercise –
but rather get on with assessing their own objectives,
their tolerance for risk, their time horizons and the
relative value of investing in the wide range of asset
classes and instruments available to them.
Like our Captain on the Shokalskiy,
we may well need to adjust the throttles, trim our course,
increase our ballast and keep the bilge pumps working
while the wind and waves do their worst to distract
us. So, if you are feeling anxious about your portfolio,
give us a call and let's take on the challenges together
until we reach those calm silvery waters. I could write
a book about our Antarctic experience – but instead
will present an audio-visual evening of video, pictures
and music of the voyage for those interested in attending
some time later this year. Who knows, by then we may
even see the first real signs of the storm abating.
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