JSE. Picture: MICHAEL ETTERSHANK
JSE. Picture: MICHAEL ETTERSHANK

This time last week I highlighted in this column the argument that if US President Donald Trump can spend America out of the Covid-19 pandemic, essentially ditching all Republican ideals of small government and free market liberalism, he has a good crack at re-election.

Then came the killing of George Floyd by police. Trump’s response has been – well, pick an adjective: disturbing, lamentable, infuriating, wrong …

George Will, a columnist for The Washington Post, will blow you away with this piece.

Will is utterly excoriating. It seems that one upshot of the Floyd tragedy is that the congressional enablers and the Republican Party itself may, at last, be turning against their presidential experiment. The final straw appears to have been Trump’s order to clear a peaceful protest on Monday with the use of teargas so that he could pose for a photo opportunity, Bible in hand, in front a nearby church.

“He did not pray,” said Bishop Mariann Edgar Budde of the Episcopal Diocese of Washington, with devastating brevity.

Sasol gamble pays off

And yet even as America erupts, as its people rage and its cities burn, Mr Market shrugs his shoulders and gets on with the business of going up. It seems implausible, given what else is going on, but there it is.

This week you may have watched your trading screen slack-jawed in horror (if you had taken a short position, expecting the market to fall) or alternatively, you’d be delighted if you called the bottom of the market and piled in to buy more shares.

The market’s resilience, nay, its relentless march higher, has been astonishing. The rand has dropped back below R17 to the dollar, while shares in petrochemical company Sasol were selling for above R130 on the JSE at one point yesterday – a staggering rise of nearly 500% from its low of R21.88 on March 23. For perspective, had you bought R10,000 in Sasol shares in March, it would have soared to nearly R60,000 in less than three months.

Shares in gaming group Tsogo Sun, which owns hotels like Montecasino, the Beverly Hills and the Cullinan, rallied 60% in just a few hours. Property group Redefine also rose 27%, while banking stocks rose 12% – all in one day.

You ought to marvel at this, precisely because nothing has really changed for SA’s prospects, yet the JSE is acting as if we’ve found a vaccine and Eskom’s towering debt has been magicked into fluffy marshmallows.

The truth is that these sorts of moves just aren’t normal. If anything, as we get further clarity on the economic implications of the lockdown, SA’s future looks more disturbing. The talk in the market is that a large short-seller, who’d put money on SA’s stock market tanking, has finally capitulated.

This week has been the cyanide cherry on the most hated bull market in history, and if you’ve called it wrong, it hurts.

Especially since, those who’ve taken short positions in the expectation that SA’s market should fall are probably right. Whatever economic recovery we see in this country is going to be hard, fraught and protracted.

But again, that old cliché “markets can remain irrational longer than you can remain solvent” is apposite. The trouble with shorting stocks is that you just have a view; when you take a long position, you have an asset that may be temporarily mispriced. That’s generally why markets keep going up over time; money has to be put to work.

A most detested rally

The point is, there are a lot of people baffled by the soaring market.

John Authers, my favourite markets writer, who pens a column for Bloomberg, calls this particular Covid-19 rally “detestable” here.

“I did my best to be open-minded yesterday, and said that this rally might be justified, if we have a true V-shaped recovery in earnings, and brutal yield curve control by the Fed that somehow doesn’t damage the banks,” he writes. “I made it clear that this was conceivable but unlikely, and that all the risks were to the downside. Judging by the feedback, everybody thinks I was being naively optimistic. If stocks keep rising, as they did Tuesday, this rally will be deeply and darkly detested.”

Certainly, the longest bull market in history comes amid a deep economic divide in many countries – SA is obviously no exception, but it’s a trend starkly clear in America, which is the source of the global rally. The longest US expansion on record and a record-breaking run in share prices have not created wealth across a broad American spectrum, let alone across races. The Big Read in the Financial Times (FT) this week discusses that economic gap.

And in keeping with FT writers, markets analyst Michael Mackenzie takes something of a historical turn in explaining the calm on markets in this fine read.

At this point we can appreciate that the soaring market is helping our battered pension savings regain some of the lustre they lost earlier this year. But just remember, it makes no sense.

*Talevi is the FM's Money & Investing editor.

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