My father used to tell this story and to my innocent mind in the early 1960’s it had to be completely historical. The story was about a colored guy speeding down the winding road into Heroldts Bay on his bicycle without brakes, screaming that he was going to see parts of his anatomy and parts of some other people’s anatomy real soon. In my imagination I could see him with his jacket trailing a thin body down that steep road and visualized how he would round the final corner with immense speed and only the beach in front to soften his crescendo. In those days the colored and black people were only allowed to swim during lunch time and a white flag would signal who could swim and who were to have their lunch at that hour. I think that the story line also had him outside the regulated hour.
Another story about another man on a bicycle also became part of the horizon of my memories. This man was riding down a steep hill on a perfectly tarred road and was crying because he knew that at the end of this free drive lay the beginning of the next steep hill that he will have to fight against. And then, when he started to strain his aching muscles against the steepness of the uphill, his emotional response was to start laughing. He was said to be laughing because he knew that on the other side of this painful hill, the downside was waiting for him.
A contrarian is somebody who is not completely taken in with the spirit of the moment. He or she is not part of any stampeding herd. A contrarian listens to a different drummer. When everybody but everybody starts to ‘invest’ in property, a contrarian will become increasingly uneasy and will start to watch out for danger signs like increasing interest rates, excessive buying sprees - be it into property, motor vehicles or whatever could be the thrill of the moment. He or she will then start to lighten the investment that they know will become a heavy burden at the peak of the cycle. By doing that they will be able to make the most of the good run that they had. If they were not contrarians but part of the stampeding herd, they would be enjoying the pleasurable ride up to the very last moment and some way down the cliff too. But reality will always catch up.
People following the herd have great fun, make a lot of good money, but cannot see the signs of the upcoming turnaround and lose a great deal of the positive returns on their money for this reason. And then, most likely, they will also be part of the stampede when the herd starts to panic. Instinctive reactions are very much a standard procedure with the herd-way of doing life. When the mood is positive, the herd will feel positive and act accordingly and when the mood becomes dark, the herd will start to wear black eye shadow...
Oh I do love to frustrate the naked capitalist to the point of blowing his - or these days also her top! So now I will start to become very pragmatic and down to earth again. Here goes!
It is now early September 2007 and the world economy is very jittery. We had an easy ride down the tar road of economic expansion. The ride was though, one of too much joy. Low interest rates made it too easy for people to borrow more and more money and to speculate with property for one. We all started to hold the view that we were Donald Trump in majestic prowess and with a nose to exceed and excel in everything that could be touched. Don’t get me wrong on this. It was a fantastic time and people were supposed to better their position, but it went too far and we started to feel invincible. The philosopher Hegel wrote about the noose of reason. We use words and concepts to explain with so much surety what will be happening and when will what happen. The tide of life will catch up with us every time and the noose will start to tighten. And then things will be rectified and humans will once again show spectres of doubt that should have been there even when the times were very good.
A recession in the USA is now an unnerving possibility. We will know quite soon whether that will become a printed fact or whether Bernanke can succeed in steering America away from that. Interest rates will most likely start to come down but a slowdown in economic activities will follow. And with that, the herding crowd will start to feel very much down in the dumps and then there will be a lack of car buying and property buying for quite a while. Recessions tend to be shorter than expansions and this should be kept in mind as well.
I am writing from a South African perspective and please keep in mind it is in no way the definitive South African perspective! My views remain the subjective accolade of a limited being trying to interpret the vastness of life’s humming. The up-trend in our interest rates is almost or perhaps already at a peak. Normally that signifies that the economy will start to improve when rates start to come down and although the slowing down results will still come through, the machinery will start to feel a more optimistic time beating ahead. This time round a USA recession might keep things depressed for a while, and the next growth phase might stay away a while longer. But it will come again.
What comes down, will go up, again. The contrarian realizes that, and will make a stand or rather a move accordingly. A majority of South Africans are still on their way to middle class standards. They will require housing that is humane and the property game will pick up when interest rates come down and the risk of a broader recession recedes. And the coming Soccer World Cup will add to the economic recovery. Big time. China continues to expand and their need for resources will not stagnate for a long time. Not to forget the mesmerizing Indians.
I propose therefore that contrarians start to scrutinize opportunities that will become available in the next 6 months and that will be materializing when the upswing takes hold again. One should get into the best opportunities way before the herd comes stampeding. Then one can ride on their back for an extended period of time until that ride becomes too hectic again.
That will be the time to get on your own bicycle and steer it in a responsible way. The contrarian way.
Wim van der Walt
6 September 2007