I noticed that Asia has opened up quite strongly this morning on the back of the China announcing it will be injecting US$586bn into its economy to provide the ‘noodle powerhouse’ from slipping into recession.

Reading the other news headlines on Bloomberg, here is some of the other news making the headlines today:

• Japan Machine Orders Have Biggest Quarterly Drop in Decade as Exports Slow
• Franklin Bank of Houston, Controlled by Ranieri, Seized by U.S. Regulator
• Zero-Interest-Rate World Looms as King, Trichet Race to Salvage Economies
• Dublin's Early Christmas Lights Fail to Boost `Basket Case' Irish Economy
• GMAC Leaves `Mom and Pop Investors' With $15 Billion of Auto Lender's Junk
• Disney Retreats After Iger Says Theme-Park Bookings Decline `Considerably'
• Down and Out in Beverly Hills: Rolexes, Picassos, Ferraris Hit Pawn Shops

In between this we know that the motor companies are looking for at least ten billion US dollars of ‘cash flow’ to help them through the last quarter of the financial year.

I don’t care how much ‘stimulus’ (read tax payer money) you throw at the economy to keep it going, if the demand isn’t there and its simply keeping the consumer tied to credit repayments, then you’re not making any inroads into the core problem.

The way I see it, the banks have flopped which has put the squeeze on the economy… BUT … this is not where the real threat to the markets is coming from. All of these ‘stimulus’ packages have tossed an absolute bucket load of credit at the markets and they’ve simply sucked it up and reverted to the downward trend.

I read the headlines in South Africa and I see the mines, retailers, auto manufacturers, car dealerships all hitting the skids. These jobs are being pulled out of the economy and don’t be surprised to see our banks and insurers start another round of retrenchments.

Here are a couple that spring to mind:

- Fascination books closed its doors costing around 300 jobs

- SAA is ‘retrenching’ 200+ call centre workers that MIGHT be absorbed by their outsourcing partner

- Mutual & Federal has shed 600 back office jobs since July this year

- Ford is looking at 800+ jobs over the next few months

- General Motors SA is looking at 2000 jobs before Christmas this year

- A local fluorspar mine has closed down – 200+ jobs

- The chairman of Anglo American has said that more half the world’s zinc and nickel mines are non profitable due to the fall in commodity prices

- The super profitable platinum mines of 6 months ago are now trading sorely in the red with the fall in the commodity prices… and the motor industry which is a major purchaser of their product is in a very bad way (even Toyota has slashed its profit estimates by 56%!)

- The number of motor dealerships in South Africa has declined by 12% and if the protracted downturn continues, that figure is estimated to rise to around 20% (worst estimates around 30%).

Let’s be very conservative and say that the SA economy will lose 5000 jobs alone based just on the examples I’ve cited above.

5000 pension plans linked to the SA stock market indirectly, 5000 people who have debt of some level or other to service. 5000 people who will look to any investments they have and liquidate them to provide cash to cover their living expenses….

And this from an economy that is ‘sheltered’…

We seem to be looking at the problem saying: “Ah well we’ve sorted out the capital levels of the banks, so we should be fine.”

What crap…

Reinforcing the capital structures was crucial to preventing a collapse, but let’s be very clear on this – the economic problems are still to come.

If you ask me whether I think there is some good longer term value in the market, then my answer is that of course there is. But I said it before – these rally’s are not the start of the next bull market. As far as I am concerned, these rally’s are spikes on the way down and they should be viewed as such.