Don't let those bad bears scare you, Goldilocks
Much as the bears may crow at the almighty headbutt that hit stocks in the developed world on Friday, don't get too excited.
We live in a perverse universe, so we can expect the mother of all "risk-on" rallies.
Why, when the evidence for the bear case is so convincing? Consider the following, which may prove to be the ultimate contrarian indicators:
There has been such a flood of terrified cash into Swiss and German bonds that yields on their two-year paper turned negative this week.
It means investors are guaranteed to get less than their money back. They are paying for the privilege of lending those governments money. As my kid would say: dude, WTF?
One has to wonder how long investors will stomach following a strategy that sets out to lose money. Risk-off is all very well, but this week's panic can just as quickly reverse.
Last year the mantra in investment circles was "the hunt for real yield". It translated into a boom in South Africa's bond market, given our benign inflation outlook and, believe it or not, relatively stable political dispensation.
Not much has changed, from the point of view of a foreign investor - despite that penis business and the high-pitched, chattering whine that so soured the domestic discourse.
Yes, the rand has fallen, but on Friday, amidst the collapse in US and European markets, the JSE clawed up just 0.1% away from Thursday's close and the price of the benchmark R157 South African bond strengthened by 0.6%.
You have to ask: are the offshore early-adopters already bargain-hunting?
Ye gods, the gold price. On Friday, in the space of an hour, just after the US released its pathetic jobs report, bullion spiked $60/oz, followed in rapid order by a 2% jump in the J150 gold index and a delirious 3% in Harmony. If ever there was an element made for South African investors, it's gold.
Much has been said about how the JSE, for the past four years, has marched in lockstep with China. Given that country's notoriously opaque reporting standards, much of its economic performance remains unmeasured. Most investors have to go on the ... heaven help us ... gut feel of analysts.
The sell-side touts have hooted about China's "failing" manufacturing sector, which hints at a concomitant drop in copper, the commodity it most requires for its industry. If that is the case, and China falls in a heap, JSE investors can expect to be badly hurt.
Rio Tinto, Xstrata, Anglo American and BHPBilliton tell a different tale. It raises the question: do you honestly believe the China-doom story?
The biggest bullish case. Insolvencies, bank runs, and a rout in stocks have sharply shortened the odds on more US and European central-bank "easing". Remember where the money went last time?