There are many students of the markets in this world, some of whom are clever enough to have been at it for decades. Those investors and traders tend to also be students of history, as we can learn so much from what came before.
Right now, in the US, journalist and author Andrew Ross Sorkin is all over podcasts and YouTube interviews talking about his new book, 1929: Inside the Greatest Crash in Wall Street History — and How It Shattered a Nation. Quite a title, isn’t it? One thing the Americans know how to do is market a new product.
They also know that market bubbles can be dangerous things. Sorkin swears it is just a coincidence, but happily for sales of his book, the release comes at a time when there is widespread (and justifiable) concern about asset values and the sheer extent of capital flowing into data centres and AI-related infrastructure. Even though the Great Depression of 1929 was nearly a century ago, the lessons are still valid today.
The worries about levels of government debt and the trajectory of key assets such as the dollar have infected even the most bullish analysts. The macro specialists who get teased for predicting 30 of the last two recessions tend to be way too early on these things, though they are often on the money about the reasons for the correction (or worse — crash). Those discussions are interesting for academic purposes, but the time to really get worried is when the tech investors look nervous, as they are usually among the last optimists standing. And when a market runs out of optimists, things get ugly.
The debate around a market crash, or at least a large correction, has become one of “when”, rather than “if” — history tells us that this is inevitable, and that it is nothing new. We know a crash will come. We also know that when it does, there’s a high likelihood that the market will shed at least a third of its value. The difficult part to speculate about is the aftermath, as government balance sheets can’t keep throwing money at the problem to support V-shaped recoveries.
The gold price is sending a strong signal that the market is scared, with the traditional safe-haven asset trading at record highs. This has been wonderful for the South African market, as a meaty proportion of the JSE is still in mining stocks and particularly gold. Most other sectors have been left for dead by the mining sector’s performance (and the broad market index), which puts asset managers in an awkward position this year if they were underweight gold or if gold stocks weren’t in their mandate. Managing money on behalf of others is a tough gig.
When the correction comes, I want to be in a position to go shopping on the market with a long-term lens
Managing your own money isn’t exactly straightforward either. I have a chunky portion of my capital in interest-bearing accounts that take advantage of structurally high interest rates in South Africa. I’m shifting some of that capital into dollars, having thoroughly enjoyed watching the rand strengthen. When the correction comes, I want to be in a position to go shopping on the market with a long-term lens. There will be babies thrown out with the bathwater and many of those babies are worth catching, as history has taught us that equities offer the best long-term performance of any asset class.
Closer to home, I’m also keeping an eye on what’s happening in the property sector. In the past week, Vukile Property Fund announced a R2bn capital raise and received enough market interest to up the raise to R2.65bn. That’s a casual 10% of its market cap raised in the space of a morning, based on a promise that the capital will be used for deals in South Africa and Iberia (with no specifics on deal metrics).
I lived through a property bubble on the JSE roughly a decade ago. Given where sector valuations are at the moment, I’m close to rotating exposure away from property ETFs in my tax-free savings account — and I would be a lot closer if so many other sectors didn’t look like bubbles waiting to pop!
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