Hi All

Vaccines are being distributed across the globe with varying levels of success. The US and Britain seem to be faring the best so far, with millions of doses already injected. One won’t go into the detail here, save to say that sometime between late 2021 and early 2022, most countries aim to have achieved penetration sufficient to start talking about herd immunity, commonly considered to be between 65 and 70% of population vaccinated.

Investors are taking this to mean that business will get back far closer to 2019 levels than we have seen since lockdowns began. Rotations out of stocks which benefitted from lockdowns, such as online shopping and gaming (now considered to have run very hard) into shares beaten up as a result of lockdowns like travel and tourism are underway.

It's an early call for sure, but that’s what markets do and we all hope they are right this time. Backing the enthusiasm is broad expectation of uncommonly high GDP growth rates around the world over the next 12 to 24 months as economies recover. Numbers like 5% in the US, even perhaps higher in the UK and China at 8% bode well for company profits and dividends as a result. RSA is even penciled in to post 3% plus over that period.

I am sure we have all seen goings-on with the likes of Gamestop, Bitcoin and Silver. These are names in the headlines but aren’t the only warning signs of a financial system very close to, or already in, bubble territory. More and more seasoned market participants are comparing the current environment to the Dot-bomb bubble. That didn’t end well and there is a growing school that says this one won’t either.

I could go on about all the slides I’ve seen showing fundamentals (such as the number of non-profit-making listed tech companies like Tesla) far more stretched than in 2001 when it blew up. Debt to GDP levels in most every country dwarf those of that period, stock markets are at historic highs and currency printing is at alltime record levels.

These are not new phenomena. On the contrary, they have been identified and spoken about for years already. What I believe has changed now which we haven’t seen for nearly 20 years is signs of inflation re-entering the system. This has always been THE gamechanger and I have no doubt will be this time too.

As recently as last week, when US 10 year bond rates increased to 1.5%, the world’s economy had a little panic attack with the $ strengthening against most every other currency and some heat coming out of stock markets. As of yesterday morning, judging by the fact the rand is recovering last week’s sharp losses, the market is starting to digest this changing environment. Considering long run average US bond yields are in the range of 4.5% p.a., there is a lot more panicking coming if rates get back to “normal”.

Locally we had this year’s Tito budget speech yesterday. The information is well published so as usual I won’t bore you with it, but is widely considered to have been comparatively good news. As I have previously written, much will depend on government restraining consumption spending and engaging both business and labour in moving toward a growth cycle before seeing any sustainability.

Having been through the money manager forecasting season, I can confirm they are quietly confident we will make more money this year than we became accustomed to in the past few years.

More next time

Kind regards,

Ricky Williams
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