TIMES are tough, and by all accounts getting tougher in every geography.
Commodity prices have wilted in anticipation of a major recession, industrial output is slumping, consumption is waning as people struggle to conserve cash, unemployment is growing daily, financial markets are experiencing a meltdown unlike any other in living memory, and defaults in housing mortgages and credit cards are growing.
Is this the time to be heroic and rush into the markets to snap up once-in-a-life-time bargains - or to sit back and see what happens next?
It is sobering to see what has happened to the market value of the major international financial services giants from the end of June 2007 to November 12 2008. It is a sad litany of "hero to zero" scenarios.
From titans to minnows
The most shocking imploding star - I suppose we can now call it a blast from the past - is Royal Bank of Scotland, now rejoicing in a meagre market capitalisation of $14bn down from a staggering $106bn. UBS was trashed from $116bn to a far more modest $39bn, while the once-mighty British Barclays Bank is a shadow of its former self at $23bn.
French competitor Société Générale crumpled up to $24bn, while the German rival Deustche Bank has emerged from the debris in equally shabby shape at $19bn.
Citigroup has probably suffered the most ignominious fall. Although it was spared the bankruptcy of Bear Sterns and Lehman Brothers, it has shrunk from $255bn to almost minnow status of $59bn. JP Morgan has emerged as the strongest of the pack, by comparison falling only modestly from $165bn to $135bn, while the other relative hero is the mighty HSBC, now standing at $129bn.
It is difficult to believe that in little more than a year the 15 leading international banks have turned $1 726bn into a proxy for a sparrow fart of $683bn!
I thought it would be interesting to have a look at what has happened to some of our South African favourites from June the 30 to November 19 2008.
As you would expect, the resource companies have experienced serious wallet burn with the market capitalisation of Anglo American off 65% from £47.35bn to £16.53bn, BHP Billiton down 54% from £42.37bn to £19.42bn and Rio Tinto off 59% to £24.5bn. They all appear to offer good value, but I would wait till next March to see what things look like before getting trigger happy!
These three saved the day
Three relatively recession-proof companies mentioned in this column before have saved the day.
Tiger Brands (including Adcock Ingram) has seen its market capitalisation increase over this period by 20% to R29.34bn, while British American Tobacco, recently listed on the JSE Securities Exchange, is off a modest 2% at £34bn. SAB Miller has not done as well as I would have liked, but still looks cheap with its market capitalisation down 17% at $22bn.
I have been droning on in this column about cash being king. I am still sure that it is, but am battling against a wave of enthusiastic belief that everything is cheap because "just look at what the price was a few months ago!"
Astonishing logic, but if you must invest go for the bullet-proof, recession-resistant counters. But then none of us can be prescriptive or dogmatic, as we really have no idea what the market is going to do save to say that in the long run it will do well.
When taking financial advice, remember that the counsel of the good old-fashioned greybeards is something to keep in the back of your mind.
Many of those dishing out advice today cannot remember a world without the CD player or cable TV, have no idea who JR Ewing is or that Dallas was also a TV programme, cannot use a typewriter and are incapable of operating without a remote control in one had and a cellphone in the other. They certainly have no idea of what a recession is and how markets behaved in previous ones.
If only I had taken my own advice I would not have succumbed to the temptation of the Northern Rock and Lloyds Bank dividend yield. My Lloyds investment has gone from pounds to pennies, and Northern Rock now belongs to her gracious Britannic Majesty the Queen of England and her hard-working Prime Minister Gordon Brown.
Bargains often get better, cash is still king and I suggest you continue to keep the powder dry a little longer. You have been warned - proceed with caution.
- Fin24.com