The JSE ended the day two percent down on weak commodities and even weaker financials.

Bruce Whitfield:
Chris Steward from Investec Asset Management, our market commentator this evening and a really interesting day and until about half past two this afternoon Chris, the market was almost in positive territory — we ended nearly two percent down — what happened?

Chris Steward:
Yes, I think in the wake of the fourth biggest up-day in US history on the Dow last night, one might have been forgiven for coming into today's market expecting a slightly better performance but I think you know, really dominated by the performance of the commodity stocks and particularly the performance of the precious metal stocks. I think possibly, you had the gold price in particular and the platinum price to a lesser degree discounting a 400-basis-point rate cut from the Fed last night, we only saw a 75-basis-point cut coming through, and as a result of that, we have seen a very dramatic negative reaction particularly from the gold and platinum prices with some of the other base metals coming off a little bit as well.

Bruce Whitfield:
One would ask the question and it makes sense to ask why the gold price drops $50 in a single day; is it as a result of the world saying okay, it looks like Ben Bernanke does have the US economy in tow or is it simply something like profit-taking, just investors saying okay we have made lots of easy money out of gold, let's sell some of the commodity off?

Chris Steward:
I think it is both actually, Bruce Whitfield.

Bruce Whitfield:
Thank you.

Chris Steward:
Very perceptive I can't really improve on that. You know I think two factors at play, one is clearly gold is an alternative currency discounting the fact that you would have a bigger rate increase in the US than manifested and as a result of that gold coming off a bit so the direction I think is logical with that particular story but the magnitude of the move I think is just reflective of the amount of speculative activity that is dominating commodity markets at the moment so any negative move will be enhanced as a result of speculative moves and I think it is not impossible to imagine a similar scenario panning out with regard to the oil price. I think when the oil price does eventually start coming off and you have to be a cleverer man than I am to call exactly when that is going to be and what the exact catalyst will be but it wouldn't surprise me at all if when other commodities start to retrace they will retrace very sharply indeed.

Bruce Whitfield:
Because the gold price went close to $950 an ounce this evening, this time yesterday it was over a thousand, and that volatility coming through. Your financial shares and I say your financial shares because that is your particular area of expertise, they have had a hugely rocky week and without going into too much detail of the US scenario, because we want to talk about that later, it was good to see that they have actually - they look as if though they have stabilised a bit.

Chris Steward:
You call them my financial shares, earlier this week I was in danger of disowning them completely, but yes it has been up and down and you know, I think as you correctly allude to the performance of the domestic financial stocks is not independent of what is going on in global financial markets even if the underlying fundamentals of the stocks are not necessarily directly linked to what is going on. Certainly the rating or the multiple that the market is prepared to pay for these stocks is very much linked to what is happening in global financial markets and you know we have seen a bit of a relief rally out of some of the financial stocks today but not a hell of a lot of follow through. You still saw some of the larger financial stocks closing in the red today despite having looked quite perky earlier on this morning.

Bruce Whitfield:
Chris Steward from Investec Asset Management, thank you very much indeed and more from him later when we will talk about some of the big stories.

Bruce Whitfield:
Tonight’s market commentator, Chris Steward from Investec Asset Management. We have been focusing a lot this week, as I suppose we naturally should have Chris, on the US investment banks. We know Old Mutual, through one of its US asset management subsidiaries, was one of Bear Stearns biggest shareholders last night though Bear Stearns started rallying quite strongly implying that the JP Morgan takeover is not a done deal and that gives you a sense that it is not a done deal yet and certainly US markets aren't necessarily quite as awful as they might appear to be on the surface.

Chris Steward:
I think the original offer may have had a touch of opportunism in it. Just to put it into context, the amount of money that JP Morgan offered for Bear Stearns is quite significantly less than what LA Galaxy paid for David Beckham.

Bruce Whitfield:
It’s a nice way of putting it, yes.

Chris Steward:
It does look like it was originally an opportunistic offer. I mean the latest, and this was in November 2007, stated net asset value of Bear Stearns and I think that was the financial year-end so that was an audited number, was somewhere in the region of $80 a share, the JP Morgan offer converts to about two-dollars a share, so there is quite a lot of potential value destruction being discounted there. Clearly there is a lot of very highly-leveraged assets that have lost a lot of value over the period but if you look at that detail of the JP Morgan offer they were sort of discounting about six-billion dollars worth of transaction fees including potential litigation expenses and it did look on the face of it, I am not that close to the numbers, it did look on the face of it as though they may have kitchen-sinked it a little bit and I think Bear Stearns shareholders are just saying, listen you know possibly two-dollars is not the appropriate price, let's have a look at this a little bit closer.

Bruce Whitfield:
But it is interesting the US asset management subsidiary from Old Mutual with potentially a one-billion dollar exposure to Bear Stearns and it makes you realise just how interconnected our planet is.

Chris Steward:
Yes I mean I get upset when I buy Standard Bank and it goes down 2 percent on the day. I wouldn't like to be operating in markets as volatile as that where you know Friday morning last week Bear Stearns was at $48 and by Monday morning it was two-dollars. You know you can really burn in those kind of markets and you know in the Old Mutual subsidiaries defence there were a number of some of the most recognised and most respected value investing names in the United States all of whom had reasonably material exposure to Bear Stearns. It is a very difficult market out there amongst the financial stocks I think.

Bruce Whitfield:
We were talking to your colleague Max King in London last night and he was just saying is this near the bottom and he certainly believes that things are quite near the bottom. What is the Cape Town view on what is going on on international markets? Is the water safe enough to go back into?

Chris Steward:
I personally think there's probably still some more stuff to come out of the system. A lot of bad news has certainly been discounted. I think we will you know if we are on a evening for quotes there was a quote I heard the other day I quite liked and that was that only monkeys pick bottoms but if we look at what is going on in the US market there I think it has the potential to degenerate beyond a liquidity issue down to a solvency issue. I think the Fed is going to have to recognise sooner or later that they are going to have to write a blank cheque, it is going to go beyond providing pure liquidity, I think they are going to have to acknowledge the fact that the US taxpayer is going to have to fund a banking sector bailout or a sub prime bailout to some sort of degree and the numbers are ranging from the hundreds of billions of dollars to something far more astronomical than that but I think once the Fed goes out there and indicates they are prepared to write a cheque of some size I think then you may see quite a sharp rally coming out of the financial stocks but until such time I think a lot of people are going to be waiting on the sidelines.

Bruce Whitfield:
And that does impact us of course as well because here we have got, just you see the levels of panic around the globe, HBOS in the UK today looked like it was having a Bear Stearns moment, regulators there bailed them out, but also see that lack of confidence in the South African market as well.

Chris Steward:
Yes I mean, you know, banking is a fragile business. Banks are fine as long as the environment is fine but you know, as long as there is a sense of panic out there it can be a difficult environment in which banks have to operate because simply they have a whole lot of assets on their balance sheet, those assets tend to be of a relatively long duration, they are funded by liabilities which in most cases tend to be of a slightly shorter duration; simply put - if everybody comes to the bank and asks for their money all at the same time the banks have to go out there and convert a lot of relatively illiquid assets to cash in a very short space of time and that results in those assets in the short-term being worth substantially less than what might be described as their intrinsic value and what starts off as a liquidity issue, simply people wanting to get their cash out of the bank because of a lack of confidence can actually result in banks turning insolvent which is why the role of the regulator providing liquidity and ensuring the confidence levels in the market remain there is absolutely of paramount importance.

Bruce Whitfield:
I remember a bank called Saambou. Thanks very much to Chris Steward at Investec Asset Management.