ARTICLES

Powells Punch

In November last year we wrote the following about the U.S. economy in the Confidential Report:

“…what if the Fed is wrong about inflation and it persists at the current high levels or even increases? September was the 5^th month where inflation was above 5%. If they are wrong, then they will need to raise interest rates more rapidly. We think that this scenario…will result in a major correction fairly soon.”

That report was published on 3^rd November 2021 when the S&P500 index had just made a new record high at 4660. In the same report we said of the predicted correction:

“…we believe that it will be a fall of between 460 points (10%) and 920 points (20%). A 20% fall will take the index back to its lower channel line at around 3680”.

Now that scenario which we warned of is coming to pass with a vengeance. US inflation in March 2022 hit an incredible 8,5% - a massive increase from the previous month’s 7,9% and way above the 5% levels seen immediately before September 2021.

This has now prompted the new Federal Reserve Bank (the Fed) chairman, Jerome Powell, to warn of a 50 basis point hike in interest rates at the May meeting of the US monetary policy committee (MPC). At the same time the Fed is reversing its policy of quantitative easing (Q/E) by reducing the size of its balance sheet at the rate of $95bn a month, known as quantitative tightening (Q/T). 

This shift in monetary policy is very dramatic - and clearly overdue. As you would expect it is having a significant negative impact on share prices, especially tech shares, with the S&P falling by a total of 5% in the last two days of last week. The critical question now is:

Is this still just a correction or the beginning of a bear trend?   

There can be little doubt that the Fed has foolishly allowed the inflation genie out of the bottle and it is going to require an extreme effort to put it back. But, at the same time, the US economy is booming with record low unemployment and massive profits being reported by listed companies.

For example, the Tesla results for the 1^st quarter of 2022 beat analysts’ expectations by a massive 42,5% with earnings per share of 322c (US). The company made sales of $18,76bn in that single quarter.

At the same time the US economy created 431 000 new jobs in March 2022 and the unemployment rate fell to an amazing 3,6%.

We are almost certain that good news flowing through from the economy added to S&P500 companies’ quarterly results will soon displace the current negativity on interest rates and the S&P will resume its upward trend. In fact, we have predicted that the S&P could potentially reach a new record high by the end of June 2022.

From a technical perspective the correction in the S&P now looks like this:

You can see that, until Powell’s shock announcement two trading days ago, the S&P was busy recovering from its “double bottom” low at 4170 on the 8^th of March 2022 and 4173 made on the 14^th March 2022.

With the unexpected downward move of the last two days, we must now consider whether the low of 4170 will be broken. We think not. In fact, we believe that markets have over-reacted to Powell’s words and will probably stage a recovery this week.

What is interesting though is how completely the markets’ attention has been diverted away from the war in Ukraine. In last month’s Confidential Report, published on the 6th of April 2022, we said the following:

“…the impact of the Ukraine invasion on world markets is fading fairly rapidly. The oil price is falling back, and financial markets are turning their attention elsewhere”.

While there remains the possibility that Putin will come up with some new and unexpected strategy, it seems more probable to us that both he and Russia are operating at the edge of what they are capable. They are now facing an experienced, well-armed and highly motivated force – while their demotivated army is being supported by an economy that is being systematically destroyed.

So, what this boils down to from a private investor’s perspective is that the correction remains a buying opportunity. Having said that, we should remind you to always maintain and stick to your stop-loss strategy.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Bluetel

Bluetel (BLU) is a company involved in pinless top-ups, prepaid electricity, ticketing and universal vouchers. As such it is a company with substantial repeat business from existing customers. This type of business model is attractive to investors because it implies minimal working capital and strong cash flows.

Bluetel’s purchase

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11^th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale

Choosing Winners

We are often asked how we go about selecting the shares to put on to the Winning Shares List (WSL). Right now, there are 102 shares on the list with 5 having gone down since they were added, 94 are up and 3 are unchanged. On an annualised basis, 24 of them are performing at above 100% per annum.   

As a private investor,

Kore Revisited

Kore (KP2) remains at once the most exciting and most risky investment on our Winning Shares List (WSL) at the moment. We originally added it to the list just over a year ago on 16^th May 2024 at a price of 20c. It subsequently rose to a high of 83c on 3^rd October 2024 and we published an article

Rand Strength 2025

The strength of the rand is both a critical and a complex issue for private investors on the JSE. Our currency is influenced by two primary forces:

1. Our local economy’s prospects
2. The rand’s role as a leading emerging market currency

These, in turn, are

Sibanye Revisited

In these uncertain times, when nobody really knows to what extent Trump will back down on the international trade war which he has initiated, many investors are moving into precious metals as a hedge against the weakness of paper currencies (especially the US dollar) and paper assets like equities and bonds.

The problem

Smart Local Investors

The last two months have been wild on the markets – mainly because of Trump’s ill-advised, on-again, off-again tariff policies. The issue now is:

Will this morph into a full-blown bear trend? Or is this correction almost over?

From his election victory on the 6^th of November 2024,

Jerome Powell

The Federal Reserve Bank (“the Fed”) is completely outside the control of the President and Executive Branch of the US government. The chairman of the Fed is appointed for a renewable 4-year term by the President. The President cannot remove the Chair without cause. The current chairman, Jerome Powell was appointed by Trump during his first term as President and reappointed by

Uncertainty Soars

Investors are by their very nature risk takers, but they are always trying to reduce the risk which they have to take to a minimum. Donald Trump, with his threat of an international trade war and his on-again, off-again tariffs has significantly increased the level of risk in markets across the world. This can be seen in the extraordinary volatility in the S&P500