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Economic Weather Reports: By Week Number

Week 5, January 2016
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The South African Economy /Stock Market: The repo rate rose 50 basis points, as expected because of the imported inflationary fears. Before you panic it is still only 5.2% and below the upper target of 6%. It is the price of oil that is mostly keeping it down. In the last 23 months the interest rate has now increased 1.25%. It has slowed the exchange rate over the last 2 days – but obviously it is far too early to tell if that will be sustained. Yes, it is going to hurt the working class but being downgraded to junk status will hurt much more, for much longer, so perhaps it is the price that has to be paid. It is unlikely that this will the last increase so extreme caution is still advised if you’re considering taking on additional debt (especially cars and property). Our global status is almost non- existent. Forget the Brics it is now the Ticks (Taiwan, India, China, Korea) – and no we aren’t the small ‘s’ in either. On the positive side, we posted the biggest trade surplus in 4 years, with imports down 13.1%, unfortunately exports are down 5.1% too. Most of the cutback in imports came from factories not ordering machinery – which obviously has a longer term effect on our production capacity. It also shows that businesses are anticipating softer sales in the country in the next year (and there is little doubt that the Nenegate-fuelled tanking of the Rand didn’t help.) The Allshare Index is back over 49,000 again, but still down on this time last year. Three years ago it was around the 40,000 mark. To put it in perspective, at the bottom of the great recession in 2008/2009 it hit 28,000.

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Offshore Markets: Every 4 years American TV becomes a snoozefest of presidential pretenders. The Donald might be amusing if it didn’t have such ramifications on the American economy. The Global economy is far from buoyant. Two very interesting global stocks that might indicate that consumer expenditure is slowing is the missing of growth forecasts by both Apple and Samsung. Part of the problem is that the Chinese consumer isn’t stepping into the breach and buying-up. Amazon’s shares tanked 13% as Bezos goes on another spending spree.

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Exchange rate: The Rand reacted positively and immediately to the hike in the repo (interest) rate but the last few hikes have shown quite clearly that the correlation between the interest rate and the exchange rate is just not there. There is a far higher correlation between the verbal diarrhea from certain politicians and the exchange rate – unfortunately completely unpredictable. We have still got a way to go to be back at pre-Nenegate levels but the direction is right. I hate to be negative, but it is unlikely that this is the beginning of the end of Rand’s rout. It is just a breather. The biggest threat right now is political upheaval and own goals. There is a standoff developing between Cosatu and the Government with pensions being used as the excuse. The Rand/Dollar ended on R15.90 and the Rand/Pound R22.63.

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Other Indices: The oil price has bounced off its all time lows below $30, up at $35,but still at historical lows. Iran is bouncing back aggressively with their oil production so the glut is here to stay in the medium term. Inflation is likely to increase this year, thanks to the poor exchange rate. Some of that can be avoided by reduced consumer expenditure, but much of it is unavoidable, especially oil and machinery imports. Not only will goods be more expensive, debt will be more expensive and the ‘real’ (after inflation) returns of your investments are going to drop too.

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If you’d like to see real-time graphs, a good place is: HERE
Week 4, January 2016
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The South African Economy /Stock Market: Late January is always the time for the WEF gathering in Davos, costing upwards of R500k a pop at our current exchange rate, not that that stopped the government sending dozens of delegates, including Number One. Pres Zuma was a no show at an important CNBC discussion, perhaps a blessing in disguise, off the cuff remarks are inclined to lead to ‘over-reaction’ by us, the great unwashed, and wiping of billions off our stock values. Not that the carnage on the stockmarket let up as a result of tht blessed silence with global stocks all wobbling badly until Friday when they recovered a bit (TGIF isn’t exclusive to us mortals it seems).Dead cat bounce? (Hint, it only bounces once). The biggest problem is these global shocks (and, let’s face it, own goals) that hit the market hard, but really clobber investor and business confidence which has a lingering effect.

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Offshore Markets: The big stories at Davos were oil and China. The general consensus is that the low price of oil is here to stay, at least in the medium term. OPEC, other oil producers like Russia and the Saudi’s are putting on a brave face, but they are really hurting, as are the fracking states in the US. Everyone else is loving it. Lower oil means more disposable income, lower transport costs, cheaper air fares, lower inflation (to the point of deflation though). It might be the biggest single factor keeping the global economy out of a recession, us included. Goldman Sachs has predicted $20 a barrel, and that is looking increasingly likely. OPEC have engineered this fall in price won’t cut production unless the other oil producers agree to do so, and they can’t/won’t. The word Karma comes to mind. It took decades for the West to transition to a ‘consumer led’ economy. China is trying to do it overnight and it isn’t pretty, but guess what… they really don’t care! We are sitting in the backseat with a learner driver and there is nothing we can do about it but hunker down and hope they learn fast.

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Exchange rate: What indicators are out there that might hurt or help the exchange rate. For SA Inc to be a desirable investment destination we need to offer them interest/yield or returns that compensate them for the perceived risk they are taking. Small 0.25% or even 0.5% increases are probably not going to do it. A 2% shock increase might work, but at what cost? Do you shore up the exchange rate by clobbering the man on the street with his mortgage, personal loans, store credit etc? Which is the worse evil? Expensive imports or a full blown recession? On the potential downside, if our ratings slide to “junk” the rand will free-fall. Although ratings usually happen every quarter, the ratings agencies are known to make exceptions. By all accounts we came close during the Nenegate crisis. All we can hope for is that Number One has learned how the market reacts to his words and actions. The devastation caused by Nenegate make Nkandla look like a lucky packet prize.

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Other Indices: While oil is in freefall the other commodity declines are slowing, but it’s too early to tell if it’s time to start buying yet. Other resources aren’t like oil. Supply can’t be quickly ramped up or down. While China’s demand is slowing, it looks like India might start to pick up the slack. Gold has levelled off in dollar terms, but in Rand terms the local mines have benefitted from the exchange rate and are profitable once again. Platinum isn’t quite as rosy as the prices continue to slide. Iron and Coal will be benefiting from the exchange rate, despite the depressed prices.

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If you’d like to see real-time graphs, a good place is: HERE

Week 3, January 2016
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The South African Economy /Stock Market:  Another torrid week for the Rand and the economy, quite enough to bring ‘Dry January’ to an abrupt end at the bottom of a glass half full. Don’t worry Pravin says there is no sign of recession. Huh? Well if he said it must be true. Let’s look at the positives then shall we? If you have a look at the market’s performance over the last 3 years we are still in positive territory, which is more than can be said of the Dow, now pretty much flat. We are flat year on year, but the Dow is officially in correction. Our inflation is still below 6%, despite the exchange rate (thanks, in main, to the oil price.) The Rand Price of Gold is at a 3 year high (again thanks to the exchange rate), which will mean fewer retrenchments in that sector. In fact, the exchange rate will be buffering the poor resource and commodity prices for SA across the board (coal, iron ore, platinum). The Budget is on the 24th of Feb this year, and it will be a good year to start sundowners at lunchtime. The drought is putting severe pressure on the treasury and the money has to found from somewhere. You can bet it isn’t from the consumers of 40% of the budget – the bloated civil service. Nor will it be from the social grant system (one taxpayer, two beneficiaries). An additional R2.5bn has been promised as a result of #feesmustfall. It could be entertaining watching Pravin produce a scrawny rabbit out of a tattered hat, the price of admittance to that show is very likely to be more tax of one sort or another (VAT? More fuel levy?)

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Offshore Markets:  China’s economy continues to wreak havoc on global economies. Why? Markets hate uncertainty, and when they cannot understand what is happening they take the pessimistic view. Chinese markets are about as transparent as a nun’s habit but unfortunately not as trustworthy. In economic terms you have a two year old driving a massive truck, stomping on brakes or the accelerator or both, with little idea what he (or she) is doing. The American economy is battling to sustain its momentum in the face of a strong dollar, low oil price and looming threat of deflation.

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Exchange rate: Exchange rate is still in free-fall. The CEO of SA Inc’s dismissive comments that Nenegate was an ‘over-reaction’ was punished with another ‘over-reaction’. Sigh. R16.79 to the dollar, having tested R16 several times in the week. R23.91 to the Pound, R24 likely to be the new normal. R18.33 to the Euro. What is it going to take to get the exchange rate to slow down or reverse? I think perhaps a 2-3% increase interest rate might do it, all at once. Obviously that would devastate the average working man. That increase in interest rates doesn’t go into anyone’s coffers. The banks still just get their 3%. It just takes chunks of income out of the disposable income of the middle class in the hope capital won’t flood out of the country. With 60% of GDP coming from consumer expenditure, the country would go into a recession that even Pravin wouldn’t be able to put a spin on. A 0.5% rise is likely soon, perhaps even as soon as the 28th of this month.

Other Indices: Brent crude is now trading below $30 (how low can it go? Some say $10). I know it’s great for us, but what are the global implications? Apart from the fact that it is going to continue to impact on the stock exchanges in the States, the biggest problem is deflation. Deflation isn’t funny and inevitably impacts negatively on markets. Businesses end up with warehouses full of goods that are dropping in price and have to be discounted below cost, there is pressure to decrease salaries and things like house prices drop.

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If you’d like to see real-time graphs, a good place is: HERE

Week 2, January 2016
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The South African Economy /Stock Market:  Well, that was a week worth forgetting. If you’re not in the mood to be depressed, stop reading now. Here’s RSA Netflix’s website link, go and binge watch for free for a month and things might have improved (https://www.netflix.com/za/). China came back to take another bite of the global economy and everyone is hurting, not just us. The word of the week was ‘circuit breaker’ a technique the Chinese authorities tried to stop the falling stock market that backfired badly. The Chinese stock market is in its infancy and the players are inexperienced. Unfortunately this toddler is a ten ton, out of control, tank and when it has a tantrum the world’s economies shudder. Yes, the Chinese economy is changing and slowing but it’s economy is still more robust than most other global economies so much of this is an over-reaction by Western economies who, frankly, do not trust the news or data coming out of the country, nor their ability to control what is essentially a capitalist notion. Globally our country is so miniscule as to be irrelevant – why are we getting so much ‘airtime’? Basically the rest of the world is globally invested in our success having taken much of the credit for ‘saving’ us and basking in the reflected glory of the miracle. That miracle is now severely tarnished. SA Inc is being seen as the new African basket case. Time for a new CEO? GDP growth estimates are now coming in below 1%. Public sector wages now account for 40% of the budget thanks to years of ‘employment creation’ by government, and guess what, they get annual increases without fail.

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Offshore Markets:  It has been a rough start for all the global economies on all stock markets. Yes, we’re only 1/3 of the way through January, so there is time for it to pick up. Why does January matter/ in the past the saying ‘What happens in January happens the whole year’ has proven to be true over and over. On the bright side, China has never been a player in the global stock markets before, so maybe that saying won’t apply this time. This is the worst start to the year in the States since 1998. The dollar keeps on appreciating, which isn’t great for their exports, but considering most of those ‘exports’ are now made anywhere but America that isn’t such a factor. China’s frequent devaluing the yuan is part of what is sending jitters down everyone’s spine. Unlike the Rand and most other currencies around the world, China ‘manages’ the exchange rate just as it tries to ‘manage’ the stock market and the economy.

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Exchange rate: Exchange rate: Once again this is the bad news story of the week. We’re back at Nenegate R16 to the dollar. I doubt the Reserve bank is going to be able to resist another interest rate hike, it was so successful last time. Not. Never mind squeezing the average working South African until the ‘pips squeak’ it’s time to put them under the press and get the oil out of those pips too.

Other Indices: Brent crude is now at an 11 year low, now below $34. If the rand was back where it was a year ago we’d all have a lot more money in our pocket. As the price of crude oil continues to drop oil and shale producers are going to start to fold all over the world. OPEC started this game of chicken but they aren’t in control anymore. When the dust settles there is probably going to be a very different scenario when it comes to oil and OPEC is unlikely to ever be as powerful as it was before. One of the reasons that it is expected for oil prices to stay low in the medium term. The traditional producers are caught in a vicious cycle. They are as addicted to the bucks from the oil as we are to using it.

If you’d like to see real-time graphs, a good place is: HERE

Week 1, January 2016
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The South African Economy /Stock Market:  The graph shows just how volatile the local stock market was in 2015. There were a number of major events that had a big impact. Grexit fears, China slowdown overreaction and Nenegate/Zumagate. We haven’t recovered from Zumagate and the long-term damage to our reputation shouldn’t be underestimated. If the ratings agencies (S&P, Moody’s, Fitch) come back from the holiday break with a nasty hangover it won’t take much for them to bump us down to junk status – which could take us years to recover from. Recalling the “architect” of the Nene saga then will be too late. Will Pravin have the guts to put the brakes on government spending , or will he up VAT or the tax rate (again) to feed the insatiable gravy train? The world will be watching. What is needed is not just a freeze on government employment and salaries, but a complete audit of government spending. Unfortunately the trade unions can kill that notion in a heartbeat with strikes. Government capitulating on the Pickitup strike with 14th and 15th cheques will have set a nasty precedent. How can we average South Africans preserve our quality of life against forces hell bent on destroying it? Firstly, start going off-grid (one of the best investments you can make in your home). Secondly recycle everything. Entrepreneurs are popping up all over the place collecting everything right from your doorstep – paper, glass, tin, plastic. Get a wormery for your greens. Turn lawn and garden clippings into mulch. Thirdly become an activist. Vote. Sign petitions. Boycott. The eToll saga has shown what collective passive resistance can do. Your investments should stay moderate and well diversified. An emergency fund should be top of your investment list. If you want to invest in ETFs, make them general rather than sector specific (Nenegate (or Zumagate part three, twenty and one hundred thirty) wiped billions off financial shares without warning). If you want to invest offshore ETFs are the only thing that are going to have a chance of getting you even a small positive return.

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Offshore Markets: In the States 2015 was the year that nothing worked, not bonds, cash or shares. Ironically that was good news for us, and the other emerging economies. Despite our dropping perception and nasty slide toward junk status, money kept pouring onto the JSE and into our bonds as offshore markets looked for ‘returns’ anywhere they could find them, despite the risk. If we are reclassified ‘junk’ though it will not be pretty. Many offshore investors will be forced by their regulators and mandates to dump our stock because it is no longer ‘investment grade’. This is one of the main reasons it is prudent to take a ‘moderate’ view to investment for at least the next few months. At the Budget in February we should be able to see how effective Pravin is at turning off the slop flowing into the gravy train. Look at what sort of increases are going into ‘populist’ projects (grants etc). Is VAT or the tax rate being increased?  Until government tighten their belts instead of expecting the taxpayer to shoulder that full burden, the economy is not going to go anywhere. The increase in the interest rates in the States had almost no effect on any economy, let alone ours (the SARB (Reserve Bank) ‘front running’ the FED and increasing our rates was a complete waste of time). There is not single global economy that is ‘soaring’, despite almost full employment in the West (the unemployed at this time are basically the unemployable). Start-ups are folding all over the place (we saw the same thing in the Dot Bomb era).

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Exchange rate: This was one of the biggest stories of 2015, and not in a good way (but let’s face it, what newspaper really like good news). Globally we were the third worst performing currency of 2015, only better than Brazil and Argentina. There were two big market events that impacted negatively, from which we are yet to recover – not  the exchange rate nor the stock market. The first was uncertainty over China. That wasn’t a single event but a classic case of group think meeting ‘algos’ (computer programs and algorithms). The second was Zumagate, from which we are yet to recover. Forget Nkandla, Nenegate wiped BILLIONS off the value of SA Inc.  What is it going to take for the exchange rate to recover? Recovery in commodity prices, Improved GDP, hanging onto our ‘investment grade’ status (not ‘junk’) and sound fiscal leadership, right from the top. The probability of any of those outcomes are currently in the low single digits.

Other Indices: I have said it before, and it still holds true, our only saving grace at the moment is the low oil price. If you want a more detailed analysis, have a look at THIS BLOG. If the dollar price was up at last year’s levels the price at the pump would be in the mid R20s and putting pressure not just on consumer expenditure but inflation, food prices, energy and all sorts of other prices. The slump on commodity prices has been on a 5 year downward trend, we should start looking to it bottoming out at the very least. South Africa needs to diversify away from Resources and Commodities to survive and thrive long term. That needs a business friendly environment – not going to happen until SA Inc has a Thatcher moment and stands up to the trade unions. Food prices are going to be under pressure with the El Nino drought, expected to be in place until at least winter, if not spring 2016. Meat prices will be depressed though, and this is already evident in the stores. If you’re an unapologetic carnivore then stock up, it won’t last forever.

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If you’d like to see real-time graphs, a good place is: HERE

Week 52, December 2015
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The South African Economy /Stock Market:  The ALSI saw the Santa rally in the last week, ending on 51324. To put it in perspective, that is only 3.7% up on the beginning of the year – but that is how returns from the stock exchange works. You win big some years – 25-35%, some years you lose big – negative 10-20% and there are years that are lacklustre like this one. In the long term when the negatives have flattened out the positives, stocks still give you the best returns for an asset class. The signing of the treasury-approved Airbus deal was a very positive sign that sanity and not cronyism will prevail. Disappointingly though the nuclear deal was slipped almost unnoticed into the government gazette which must have cheered Putin up no end. One can only hope they have learned a bit from Chernobyl. No details where they are going to build them, but I do hear there is some spare land near Nkandla that might be suitable. To put it in perspective though, this is just the start of the process that is promised to be ‘transparent’. It is up to us to ensure that it is. Never mind what the stock exchange does, we all know it has a mind of its own and often has little to do with the real economy. What we need is some significant real growth in GDP. The only place that the GDP has any real way to grow is in consumer expenditure (Resources aren’t going to come flying into the rescue as they have in the past). It is quite easy to stimulate that – boost both consumer confidence in the economy and disposable income. The first can be achieved by blissful silence from the leadership (duct tape comes in some fancy colours these days). The second is by refraining from taxing the populace to death and using the interest rate as a blunt, yet infective, tool to manipulate the exchange rate. Your guess as to the chances of either of those happening? (Negative numbers can apply). A rise in interest rates often signals a softening in the property market. The market for holiday homes has never quite recovered from the credit crunch, perhaps people are waking up to the fact that they are a dreadful investment and are more like an indulgence. Gone are the days of double digit growth in residential property prices. Listed property on the other hand has been the surprising stand-out yet again this year. Don’t confuse the two.

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Offshore Markets:  Despite fears to the contrary, the 25 basis point interest rate rise had almost no effect on the USA stock exchanges, and the Santa Rally made its belated appearance. US stock exchanges are still down year-on-year, but might just squeak into a flat performance over the next few days. With interest rates in the West still at historical lows, you have seen an unprecedented situation with a lacklustre stock exchange and poor returns from interest rates – and bonds now also under pressure. That is not a happy picture, but good news for our stock and bond exchanges (as long as our bond market remains ‘investment grade’ and doesn’t slip into ‘junk’. The biggest economy in Africa (nope, not us) is also in a world of pain, thanks to the drop in the price of oil. The Nigerian naira is a fixed currency, unlike ours, which is why you don’t hear much about its devaluation. It is widely believed to be significantly over-valued and that results in a black-market. Of course they are expecting a tidy little windfall from that brand that is feeling the Low in Yellow at the moment.

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Exchange rate: It has been a horrible year for the rand, R15 to the dollar and R22 to the pound is now the new normal. What are the prospects for 2016? Much like the stock exchange, the exchange rate is a reflection of the rest of the world’s perception of our economy. Clearly this year we got a resounding F. It would be really to blame that all on commodity prices but the fallout from the NENE affair, from which we are yet to recover, shows that ‘own goals’ are as much to blame. Baring another blunder, we should see a levelling off in the rate of decline but continued volatility. If we ever needed a warning of what could happen down the line if we don’t pull ourselves out of this slump, just look at Brazil. Last week it ran out of money to run its State Hospitals.

Other Indices: Brent crude continues to decline, with a growing glut in oil. We are unlikely to see the price rise up to the levels seen only a year ago of $80 unless things go really pear-shaped in the Middle East, specifically in Saudi-Arabia. The low oil price is hurting the Saudis more than they let on, and for the first time they are going into current account deficit.

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If you’d like to see real-time graphs, a good place is: HERE

Week 52, December 2015
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The South African Economy /Stock Market:  The ALSI saw the Santa rally in the last week, ending on 51324. To put it in perspective, that is only 3.7% up on the beginning of the year – but that is how returns from the stock exchange works. You win big some years – 25-35%, some years you lose big – negative 10-20% and there are years that are lacklustre like this one. In the long term when the negatives have flattened out the positives, stocks still give you the best returns for an asset class. The signing of the treasury-approved Airbus deal was a very positive sign that sanity and not cronyism will prevail. Disappointingly though the nuclear deal was slipped almost unnoticed into the government gazette which must have cheered Putin up no end. One can only hope they have learned a bit from Chernobyl. No details where they are going to build them, but I do hear there is some spare land near Nkandla that might be suitable. To put it in perspective though, this is just the start of the process that is promised to be ‘transparent’. It is up to us to ensure that it is. Never mind what the stock exchange does, we all know it has a mind of its own and often has little to do with the real economy. What we need is some significant real growth in GDP. The only place that the GDP has any real way to grow is in consumer expenditure (Resources aren’t going to come flying into the rescue as they have in the past). It is quite easy to stimulate that – boost both consumer confidence in the economy and disposable income. The first can be achieved by blissful silence from the leadership (duct tape comes in some fancy colours these days). The second is by refraining from taxing the populace to death and using the interest rate as a blunt, yet infective, tool to manipulate the exchange rate. Your guess as to the chances of either of those happening? (Negative numbers can apply). A rise in interest rates often signals a softening in the property market. The market for holiday homes has never quite recovered from the credit crunch, perhaps people are waking up to the fact that they are a dreadful investment and are more like an indulgence. Gone are the days of double digit growth in residential property prices. Listed property on the other hand has been the surprising stand-out yet again this year. Don’t confuse the two.

alsi

Offshore Markets:  Despite fears to the contrary, the 25 basis point interest rate rise had almost no effect on the USA stock exchanges, and the Santa Rally made its belated appearance. US stock exchanges are still down year-on-year, but might just squeak into a flat performance over the next few days. With interest rates in the West still at historical lows, you have seen an unprecedented situation with a lacklustre stock exchange and poor returns from interest rates – and bonds now also under pressure. That is not a happy picture, but good news for our stock and bond exchanges (as long as our bond market remains ‘investment grade’ and doesn’t slip into ‘junk’. The biggest economy in Africa (nope, not us) is also in a world of pain, thanks to the drop in the price of oil. The Nigerian naira is a fixed currency, unlike ours, which is why you don’t hear much about its devaluation. It is widely believed to be significantly over-valued and that results in a black-market. Of course they are expecting a tidy little windfall from that brand that is feeling the Low in Yellow at the moment.

dow

Exchange rate: It has been a horrible year for the rand, R15 to the dollar and R22 to the pound is now the new normal. What are the prospects for 2016? Much like the stock exchange, the exchange rate is a reflection of the rest of the world’s perception of our economy. Clearly this year we got a resounding F. It would be really to blame that all on commodity prices but the fallout from the NENE affair, from which we are yet to recover, shows that ‘own goals’ are as much to blame. Baring another blunder, we should see a levelling off in the rate of decline but continued volatility. If we ever needed a warning of what could happen down the line if we don’t pull ourselves out of this slump, just look at Brazil. Last week it ran out of money to run its State Hospitals.

Other Indices: Brent crude continues to decline, with a growing glut in oil. We are unlikely to see the price rise up to the levels seen only a year ago of $80 unless things go really pear-shaped in the Middle East, specifically in Saudi-Arabia. The low oil price is hurting the Saudis more than they let on, and for the first time they are going into current account deficit.

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If you’d like to see real-time graphs, a good place is: HERE

Week 51, December 2015

The South African Economy /Stock Market: I think we all sighed with relief that the plummeting economy and exchange rate seemed to be given a parachute in the way of Pravin Gordhan. Unfortunately it was short-lived as the JSE did an about turn, along with the American and European stock exchanges on the news that the FED was going to increase interest rates by 0.25%. One would have thought that it would have been factored into the price after months and months of speculation – but the fact that it wasn’t is probably an indication of what happens when you cry wolf one too many times. It looks like we are going to end the year flat or negative for the year, ditto the S&P and Dow, with the tech heavy Nasdaq fairing way better. Financial shares faired worst in the Nene saga, and they haven’t recovered. Barclays announcement that it was looking to dump ABSA didn’t help. Increased interest rates increases the likelihood of default, especially on the back of a likely recession.

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Offshore Markets: While ‘Black Friday’ – the day after Thanksgiving – broke all online retail records, there is little doubt that this has cannibalised traditional December retail sales. Consumers all over the world are being far more cautious. China continues to slow down and until it bottoms out resource rich emerging economies are going to be under pressure, with Brazil the first of the BRICs flat-lining. The MCSI Emerging Market index has fallen 17% this year. Some of the Emerging Market (EM) countries will weather the storm quite easily, We aren’t one of them. Our government debt is at unacceptable levels, “years of living beyond our means” – or more accurately government spending our money like a teenager with their parent’s credit card. Until we reclaim it and cut it up, that isn’t going to stop. The rise in US interest rates means that that debt is more expensive to service. For the first time analysts are now talking about this latest ‘correction’ being the last wave of bad news for EM. If it isn’t the Emerging markets will not just see a recession, but a multi-year recession.

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Exchange rate:The exchange rate continues to bring misery to the economy and anyone hoping to vacation anywhere North of Messina. Is R15 to the dollar and R22 to the pound is the new normal? What would be needed to bring it down? Weakening of all the Western currencies – unlikely. More foreign currency inflows – possible but will need a rise in interest rate of at least 1.5% in the first quarter.

Other Indices: All commodity and resource prices are under pressure – with the exception of gold. Brent crude is now below $40. That will depress consumer expenditure in many American States and Canada. It is likely to remain depressed for a while as there are significant stockpiles and, so far, Europe’s winter has been mild. It is difficult to say whether the bombing of oilfields under the control of Isis will have any effect on the supply, nobody is owning up to buying it.

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If you’d like to see real-time graphs, a good place is: HERE

Week 50, December 2015
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The South African Economy /Stock MarketI think we all sighed a great sigh of relief that the plummeting economy and exchange rate seemed to be given a parachute in the way of Pravin Gordhan. Unfortunately it was short-lived as the JSE did an about turn, along with the American and European stock exchanges on the news that the FED was going to increase interest rates by 0.25%. One would have thought that it would have been factored into the price after months and months of speculation – but the fact that it wasn’t is probably an indication of what happens when you cry wolf one too many times. It looks like we are going to end the year flat or negative for the year, ditto the S&P and Dow, with the tech heavy Nasdaq fairing way better. Financial shares faired worst in the Nene saga, and they haven’t recovered. Barclays announcement that it was looking to dump ABSA didn’t help. Increased interest rates increases the likelihood of default, especially on the back of a likely recession.

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Offshore Markets: While ‘Black Friday’ – the day after Thanksgiving – broke all online retail records, there is little doubt that this has cannibalised traditional December retail sales. Consumers all over the world are being far more cautious. China continues to slow down and until it bottoms out resource rich emerging economies are going to be under pressure, with Brazil the first of the BRICs flat-lining. The MCSI Emerging Market index has fallen 17% this year. Some of the Emerging Market (EM) countries will weather the storm quite easily, We aren’t one of them. Our government debt is at unacceptable levels, “years of living beyond our means” – or more accurately government spending our money like a teenager with their parent’s credit card. Until we reclaim it and cut it up, that isn’t going to stop. The rise in US interest rates means that that debt is more expensive to service. For the first time analysts are now talking about this latest ‘correction’ being the last wave of bad news for EM. If it isn’t the Emerging markets will not just see a recession, but a multi-year recession.

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Exchange rate:The exchange rate continues to bring misery to the economy and anyone hoping to vacation anywhere North of Messina. Is R15 to the dollar and R22 to the pound is the new normal? What would be needed to bring it down? Weakening of all the Western currencies – unlikely. More foreign currency inflows – possible but will need a rise in interest rate of at least 1.5% in the first quarter.

Other Indices: Other indices: All commodity and resource prices are under pressure – with the exception of gold. Brent crude is now below $40. That will depress consumer expenditure in many American States and Canada. It is likely to remain depressed for a while as there are significant stockpiles and, so far, Europe’s winter has been mild. It is difficult to say whether the bombing of oilfields under the control of Isis will have any effect on the supply, nobody is owning up to buying it.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 49, December 2015
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The South African Economy /Stock Market  If we are going to get a “Santa Rally” in the stock-market he had better get a move on. Last week saw a continued weakness. Realistically though, it isn’t all moonlight and roses. Although the anticipated S&P rating downgrade didn’t bump us into junk bond status, the ‘neutral’ outlook was changed to negative and that is going to impact both the exchange rate and the stock market this week. It is interesting to watch the standoff between MTN and Nigeria, and it doesn’t reflect well on either country. Nigeria’s typo on the MTN deal, only $500 worth, doesn’t help with perceptions as Africa being a good place to do business. The other big news is the very public cosying up of the government and China. There is no such thing as free chop suey where China is concerned, and the rest of Africa has learned that the hard way. It would be a great pity, having got rid of the last of the Western colonialists, to invite in a new bunch of Eastern ones. The government has been trying to shore up confidence with platitudes about cutting back in spending etc, but is it just crying wolf? How many times have we heard that? What needs to happen to turn the economy around? Basically – consumer spending. We can’t rely in commodities to pull us out of the rut; we, the ordinary people on the street are going to have to do it – but that has to be helped by government. How? Holding or cutting interest rates, cutting the bloated civil service (not going to happen), making it easy for direct foreign investment by reforming the labour laws (including scrapping the massive increase in minimum wage) and reigning in the unions (right…). Consumer expenditure makes up 67% of the US GDP, something the Chinese are now trying to emulate, why can’t we?

alsi

Offshore Markets: The American stock exchanges had a good rally last week – we seemed to follow Europe. The stimulus in Europe still has to kick in, and we are likely to see a series of them rather like we did in the States. Like the States, interest rates can’t be dropped to stimulate the economy, they are already almost zero, and in some instances below zero. The US’s economy, while on the upward trajectory, appears to be very skittish and volatile, moving on the smallest change in sentiment or rumour. Bull markets do not typically last longer than 7 years, and that is where they are at. The stock market has been far more resilient than the economy though, and it has taken every one of those 7 years for it to be restored to what we see today. Why has the stock-market outperformed the economy? – perhaps because interest rates have been so low it has been the only place to get a return on investment even in the mid single digits. Europe is showing that it is still fragile 7 years on and the developing and emerging economies are in a world of pain. One thing that the 2008 crisis probably did was get rid of rampant conspicuous consumption for good.

dow

Exchange rate: The Rand/Dollar continues to slip unabated. Hopefully SARB has realised that ‘front-running’ a giant like the States is like playing King Canute, and we all know how effective that was. If a massive economy like China can’t get it right, I don’t know why we thought we could. The exchange rate weakness is right across the board – so yes – it is our problem not Dollar/Pound/Euro strength. It is catch 22 for the government. Do they sit on their hands and let the Rand find its own level or do they raise taxes, raise interest rates and try and stave off the inevitable (and kill a consumer-led recovery in the process)?

Other Indices While we might be focussed on the slip in the price of gold, the price of platinum has fared even worse. This is part of the ‘new normal’ post 2008. While it is a precious metal and used in the jewellery trade, its primary use is in the automotive and other industries. It has also been stockpiled, and probably still is, making a recovery any time soon unlikely. The only saving grace of course has been the exchange rate which has lifted the price for SA mines. The low price of all resources and commodities ( that once made us ‘great’) is resulting in a massive consolidation in the mining sector, and a quiet, yet just as large, investment in technology and mechanisation which will result in even fewer jobs, but less exposure to labour action that has always dragged down the share price. In my opinion, the price of oil is one of the only things that is keeping this country out of recession. If we were paying prices seen a year ago with the Rand/Dollar where it is now, inflation would be well over target and disposable income very hard hit.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 48, December 2015
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The South African Economy /Stock Market If we are going to get a “Santa Rally” in the stock-market he had better get a move on. Last week saw a continued weakness. Realistically though it isn’t all moonlight and roses. Although the anticipated S&P rating downgrade didn’t bump us into junk bond status, the ‘neutral’ outlook was change to negative and that is going to impact both the exchange rate and the stock market next week. It is interesting to watch the standoff between MTN and Nigeria, and it doesn’t reflect well on either country. Nigeria’s typo on the MTN deal, only $500 worth, doesn’t help with perceptions as Africa being a good place to do business. The other big news is the very public cosying up of the government and China. There is no such thing as free chop suey where China is concerned, and the rest of Africa has learned that the hard way. It would be a great pity, having got rid of the last of the Western colonialists to invite in a new bunch of Eastern ones. The government has been trying to shore up confidence with platitudes about cutting back in spending etc, but is it just crying wolf? What needs to happen to turn the economy around? Basically – consumer spending. We can’t rely in commodities to pull us out of the rut, we, the ordinary people on the street are going to have to do it – but that has to be helped by government. How? Holding or cutting interest rates, cutting the bloated civil service (not going to happen), making it easy for direct foreign investment by reforming the labour laws (including the massive increase in minimum wage) and reigning in the unions (right…). Consumer expenditure makes up 67% of the US GDP, something the Chinese are now trying to emulate.

alsi

Offshore Markets

The American stock exchanges had a good rally last week, we seemed to follow Europe. The stimulus in Europe still has to kick in, and we are likely to see a series of them rather like we did in the states. Like the States interest rates can’t be dropped to stimulate the economy, they are already almost zero, and in some instances below zero. The US’s economy while on the upward trajectory appears to be very skittish and volatile, moving on the smallest change in sentiment or rumour. Bull markets do not typically last longer than 7 years, and that is where they are at. The stock market has been far more resilient than the economy though, and it has taken every one of those 7 years for it to be restored to what we see today. Why has the stock-market outperformed the economy – perhaps because interest rates have been so low it has been the only place to get a return on investment even in the mid single digits. Europe is showing that it is still fragile 7 years on and the developing and emerging economies are in a world of pain. One thing that the 2008 crisis probably did was get rid of rampant conspicuous consumption for good.

dow

Exchange rate

The Rand/Dollar continues to slip unabated. Hopefully SARB has realised that ‘front-running’ a giant like the States is like King Canute, and we all know how effective that was. If a massive economy like China can’t get it right, I don’t know why we thought we could. The exchange rate weakness is right across the board – so yes. It is our problem not Dollar/Pound/Euro strength. It is catch 22 for the government. Do they sit on their hands and let the Rand find its own level or do they raise taxes, raise interest rates and try and stave off the inevitable (and kill a consumer led recovery in the process).

Other Indices

While we might be focussed on the slip in the price of gold, the price of platinum has fared even worse. This is part of the ‘new normal’ post 2008. While it is a precious metal and used in the jewellery trade, its primary use is in the automotive and other industries. It has also been stockpiled, and probably still is,  making a recovery any time soon unlikely. The only saving grace of course has been the exchange rate which has lifted the price for SA mines. The low price of all resources and commodities ( that once made us ‘great’) is resulting in a massive consolidation in the mining sector, and a quiet yet just as large investment in technology and mechanisation which will result in even fewer jobs, but less exposure to labour action that has always dragged down the share price. In my opinion, the price of oil is one of the only things that is keeping this country out of recession. If we were paying prices seen a year ago with the Rand/Dollar where it is now, inflation would be well over target and disposable income very hard hit.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 48, November 2015
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The South African Economy Stock Market It’s all quiet on the Western hemisphere front as everyone gets over Thanksgiving heartburn and Black Friday spending spurges. Oh yes, the American stock markets were closed, which might have had something to do with it. Last week we were going to watch how successful the SARB’s (no, not the SA Rugby Board) interest rate rise was in stemming the depreciation of the Rand. It closed on R14.41 on “thin trade” (nobody buying or selling) on Friday. It dipped its toes briefly below the R14 level for a nanosecond last week, but it’s back up again. Oh well. So much for front-running the FED. Better luck next time I guess. The good news is that we escaped going into recession, just, by posting a positive GDP for the third quarter (it takes 2 quarters in a row before they declare an official recession). The stock exchange is slipping lower, and as usual it is the resources that are dragging it down, now at half where it was in mid 2014. Most unit trusts have thrown these stocks out of their holdings and they are now only found in the diehard ‘Value’(less) funds. Downgrade of rating is the topic of conversation again at the moment. Brazil and Nigeria and us have been warned.

alsi

Offshore Markets

The Dow and S&P ( USA) are almost back at the levels they dropped from on ‘Black Monday’. It will be interesting to see what the retail figures are for Friday’s Black Friday. From early reports it appears that there has been a swing to online shopping rather than joining the scrum at the store. You probably noticed that for the first time this year South African retailers joined the ‘Black Friday’ trend, with notable success. Large retailers were discounting extensively. The Euro/Dollar continues to slip and it is anticipated that the next round of stimulus (Thursday the 3rd) – the European equivalent of QE ( Quantitative easing) will be bigger than initially anticipated.

dow

Exchange rate

The exchange rate continues to slide despite the ‘best’ efforts of the Reserve Bank. When the FED reviews their rates next month it is increasingly likely that interest rates will be lifted, even if it is as little as 10 basis points (0.1%). The Rand slipped back from last week’s recovery right across the board (in other words it is not the strength of the other currencies, but our weakness). This continued depreciation is going to impact on our imported inflation.

Other Indices

Brent oil prices continues to drift lower, trading at $43 in Asia on Friday (the US markets were closed). Its not going to be happy xmas for shale producers this year. Don’t expect another drop in the price of petrol though, the exchange rate has eaten that. Perhaps I am being optimistic, but we should start looking at a levelling off of the decline in the prices of resources and commodities. After all they are a finite resource, one probable reason that China is stockpiling them, even though they don’t need them. Resource cycles are long, so don’t expect an instant turnaround.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 47, November 2015
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The South African Economy Stock Market
Volatility is still the name of the name, but I suppose the main news of the week was the 25 basis points (0.25%) increase in interest rates. Interest rates are usually increased to put the brakes on an overheated economy (not), bring down inflation (not) or boost the exchange rate (maybe). Thursday saw an improvement of 2.6% in the exchange rate – at a 2 week high! Yay ( …groan, scraping the barrel for good news). The spin was that the SARB (South African Reserve Bank) was “front-running the FED” (American equivalent of SARB). Friday saw an improvement in the exchange rate by a massive 0.04%. Is that it? I hope not, but quite possibly. The dollar is still very strong, the Euro/Dollar is 1.08 – ever closer to parity. When the FED finally increase their exchange rate, and it looks like it will be next month, we are going to have to increase our interest rates again to prevent capital outflows. This is going to hit the average working person very hard, but don’t worry just hit the boss up for an increase – right? There are massive retrenchments going on in the mining and resources sector, private sector is barely employing new staff and salary increases in 2016 are going to be muted at best. The government has been gobbling up your tax faster than you can pay it, and another tax increase, probably from VAT is in the pipeline. VAT is the second biggest revenue earner bringing in a massive R261 billion.

alsi

Offshore Markets
Buoyant stock exchange prices offshore are mostly coming from ‘digital’ companies, the buzzword de jour is a ‘Unicorn’, a start-up with a valuation over $1 billion – Uber, Square, Airbnb for example. There are some indications that this ‘Tech bubble’ is slowing down, if you can remember a few months back, much of the ‘gas’ in the Chinese wobble came from tech companies. The American economy seems to be sustaining its economic growth, the same can’t be said for Europe and another round of quantitative easing may be forthcoming. Why is India, another emerging economy, succeeding where we aren’t? The Rupee has only depreciated 5% and ours is over 20%. One of the differentiators is that they have made it easier for foreign investment. There is no doubt that our labour laws are one of the biggest deterrents to foreign investment. Blue collar labour is militant, unionised, poorly educated and almost impossible to fire – certainly not for poor productivity or work ethic.

dow

Exchange rate
It is going to be interesting to watch the exchange rate this week. Will the interest rate rise do its work or not? There is always a lag between the depreciated currency and ‘imported’ inflation and it isn’t really showing yet. The muted ‘demand’ (we haven’t got any money to spend!) is helping keep the inflation down.  A key level for the Rand dollar is obviously R14, to stand a chance of reversing the trend the exchange rate has to stay below that consistently for at least 10 days.

Other Indices
Gold has fallen pretty dramatically in the last couple of weeks – sorry for the spoiler gold-bugs. Never mind… go and open the safe and look at that shiny bit of precious metal, which is about all it is good for at this stage (with apologies to Warren Buffet). The price of Brent Crude Oil is dropping  again and Wall Street is seeing a flurry of consolidation before the inevitable defaults as marginal producers (especially shale producers) can’t keep their heads above water. The persistently low oil price is going to have a big impact on Nigeria who has one of the higher breakeven points. Obviously MTN’s fine will give them a hand with that, sorry if you’re an MTN shareholder, I am sure propping up the Nigerian regime wasn’t your intention. The depressed resource and commodity prices are also creating fallout in companies that have been around for decades. Lonmin is in a world of pain and they might not recover. The end of an era.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 46, November 2015
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The South African Economy Stock Market
There is little doubt the attacks in  Paris are are going to put a wobble on global stock exchanges, ours included. The last thing we need after a fairly steep drop already in the last 10 days. Since the 4th of November the stock exchange has dropped from a high of 54609 and is now down at 51199 – a 6.2% drop in 10 days. The falls have been right across the board, but once again resources leading the way and the resource index hitting yet another low. Gold mining shares continue to haemorrhage value, and the rand price of gold is levelling off. It is unlikely that SARB will increase the repo rate just yet, the economy is just too fragile, and while it may slow the erosion of the exchange rate it will have a negative effect on the economy where the demand is still very low. When the US raises their rates, then SARB will have little option but to follow suit, but the general consensus is to wait until then. With the drought starting to bite country wide it is a good time to start banting. Grain and cereal prices are going to rise and ironically the price of meat likely come down as farmers send animals to market because they can’t afford to feed them.

alsi

Offshore Markets

Monday morning is a good day to sit on your hands from an investment perspective. There is likely to be excessive volatility in the markets as nervous investors sell and opportunistic investors mop up just like they did on the 24th of August. This on the back of both France and Germany showing signs o sluggish growth. China’s factory output slowed in October, and nervousness around their slowing growth is one of the factors that impacted both our exchange rate and stock exchange last week. Fixed investment in China (the engine of previous growth cycles) is also down but retail sales are up marginally. On the whole there are more dark clouds than green shoots. Whether we like it or not, our recovery is going to be closely linked to the recovery in China.

dow

Exchange rate
There seems to be nothing stopping the slide of the rand, it has a momentum of it’s own and the breaks are as worn as a taxi on William Nicol. This week saw the Rand Dollar test the R14 level for the third time, and this time stay above it. The Rand Pound is motoring on to test R22 (R21.90 on Friday). The only Western currency we are stable against is the Euro, and that is because of their problems and has nothing to do with us. The Euro is sailing close to dollar parity, and after Saturday, could well see that level this coming week. The terrorist attacks are already being blamed on the unchecked wave of migrants flooding Europe and tensions are going to be high – not conducive to good business.

Other Indices
Brent crude price slide again last week as it emerged that stockpiles of oil were at an all-time high – 3 billion barrels. It would take months to work through that stockpile. None of the producers are letting up on production either, OPEC and non-OPEC playing a game of chicken and nobody if flinching. Russian production for example is at the highest level seen in years.

gold

If you’d like to see real-time graphs, a good place is: HERE

Week 45, November 2015
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The South African Economy Stock Market

The rise and fall of the stock exchange last week underlines the importance of ‘sentiment’ in the market. It had everything to do with the West dipping their toes into ‘riskier’ emerging markets with their sweeter yields than anything we did or didn’t do. Clearly they didn’t like the temperature of the water and soon retreated again. We briefly flirted with the all-time high we last saw in April. It is important to remember that the stock exchange is not the economy. If the economy was anywhere near as buoyant as the stock-exchange we would all be having a very happy holiday season. As is usual of late, commodities took another hammering. The only people hanging onto commodities are the ‘deep value’ unit trust managers, and their clients are leaving them in droves too. Richemont, the luxury brand share (that offloaded its pesky tobacco sidekick a few years ago) fell hard last week (down 7%) – another fall-out from weakening in the east, specifically China/Hong Kong where conspicuous consumption still reigns. When big shares like Richemont wobble, everything starts falling off the bus. The MTN fine hasn’t helped. Someone stuffed up, but nobody is saying who. Nigeria is rubbing its hands in anticipation of a windfall equal to 23% of their annual budget. This spat has severe implications on SA/Nigeria relations and will reverse much of the good work done by multinationals investing in Nigeria to dispel the image of a corrupt nation.

alsi

Offshore Markets

The American economy is nearing ‘full employment’ (those that want to work have jobs, there will always be those that choose not to) which is the strongest signal yet that the interest rate might rise next month. That soft spot in jobs reported recently has not turned into a trend. Inflation is still low, but the strong dollar is helping to lift that from imports. The cooling down of the American stock markets at the end of last week, especially in the interest rate sensitive utility shares, indicates that this is a growing sentiment in the US. Why all the nervousness over an interest rate increase? Simply put, it will be the first in a decade – a game changer from the largest economy in the world. We have talked about the dangers of deflation often (you can read the blog HERE if you missed it) and China is the latest to come under the spotlight. CPI is predicted to be only 1.4% this year, half the desired level of 3%.

 

Exchange rate
The Rand/Dollar exchange rate is seriously flirting with that R14 ‘new normal’ level. Things are looking so bad that in Zimbabwe, who ‘borrow’ our Rand and the Dollar –  retailers, schools and even the government are refusing Rand. Ungrateful bunch. Who can blame them, I wish we had a choice. The Rand/Pound found its comfort level at R20 weeks ago, it’s now testing R21.

dowrdoll

Other Indices
Brent Crude oil is still oscillating around the $50 level – but with the continued deprecation of the exchange rate the 22c petrol price drop is likely to be short-lived. Celebrate that it is staying that low, if it was at the $85 level that we saw this time last year we really would have a reason to cry. The gold price has dropped dramatically over the last few weeks, but that is the ‘fun’ of being a gold bug.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 44, November 2015
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The South African Economy Stock Market

While the stock market has levelled off somewhat and the volatility calmed to a storm not a hurricane, the rand wobbled yet again. This weakening in currencies was right across all emerging markets – again – as Western investors shied away from ‘risk’. If you’ve been following my blogs and commentary over the last year you will know that ‘bonds’ are an important asset class. This is debt that is auctioned off to raise funds for governments and large corporates. Our bonds are currently the worst performing bonds in the merging market. Basically what that means is that we are perceived as more risky and the buyers of the bond want to be compensated for that with more ‘interest’ (called yield). The yields are sitting at 8.4%, coming close to levels last seen in March 2011. The good news is that any of your investments that have a bond component – like retirement funds – will benefit from the increased yield. Inflation is much lower than expected at 4.39%. This is good and bad news. It indicates that the ‘demand’ for goods is low. Demand is down because we consumers aren’t ‘consuming’, we are being cautious with our money (or we’ve maxed out all the credit we can get and are just servicing the debt). Obviously the low price of oil is helping.

alsi

Offshore Markets

The amount of volatility caused by the ongoing speculation as to if and when the FED will raise rates – reverberating right across the world – is nauseating. I think most of us wish they would just do it already and put some certainty back into the global economy. The problem is that the American economy keeps sending out mixed signals. Of course the increase will also impact us, and could well weaken the rand even more. Rock and a hard place. China’s economy continues to cause concern, but their history of ‘managing’ the numbers just means the West makes its own estimates.

sandp

Exchange rate

The major RSA economic story this year has been the 20% depreciation of the Rand against the dollar, and other Western currencies. When this sort of depreciation happens investors might bump up their offshore holdings in anticipation of complete economic collapse Zimbabwe-style. Offshore exposure certainly helps in ‘hedging’ your local volatility but have a targeted amount offshore and don’t give in to a knee jerk reaction.

exrate

Other Indices
Brent crude remains depressed and we will be seeing a smallish drop in the price of petrol this week. The upward pressure on the price is more likely to come from the exchange rate and not movement in the price of crude at this time. Iron ore exports are up, this might be good news for the exporters and our balance of payments but it is likely to be as a result of (China specifically) stockpiling the mineral while the prices are at historical lows. I’m sure it’s not going into the production of steel to dump in the West knowing full well they are too polite to stop the practice and start a trade war. Steel producers all over the West are having to close up shop and retrench.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 43, October 2015
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The South African Economy Stock Market

In case you missed it, last week saw Minister Nene present the mini-budget – eventually. He was ultimately allowed to proceed after several false starts  once those bastions of the democratic protest were unceremoniously removed from the chamber. Not sure what the EFF hoped to accomplish, but there you go… Not that there was anything earth-shattering revealed. Tax revenue is down and the fattest pig at the fiscal trough is the civil servants’ budget with their cosy 10.1% increase. In the private sector increase have been half that, hence… Wait for it… Lower tax revenue. It should be clear to everyone, including government, that they are killing the business goose that lays the tax revenue egg. Can government retrench? I doubt it. One worrying little dropping in the budget was hint at VAT increase in the main budget. The economy is slowing, the annual GDP increase estimate has been cut yet again, now down to 1,5%. Mr Pinketty’s brain droppings are still hanging around with some mention of a wealth tax – roundly dismissed as unworkable by the Davis Tax Report. They don’t even work in France. It looks like SAB are going to be swallowed up by the Belge, if they can get around the various competition boards. If they do delist it will be a sorry loss of a Rand hedge fund from the JSE, but at least there are anothers 14 to step in the breach (not like the 4 in 2003). On the plus side the JSE continues to climb, making back much of the losses post April.

alsi

Offshore Markets

Historically, October can be notoriously volatile and everyone, and globally is taking a breather as things seem to be quietening down. Chinese trade data was down below 7%, but didn’t really rattle the global markets. There is an underlying scepticism in the official data coming out of China, so bad news was probably built into the markets. The possibility of deflation in the States is continuing to worry economists. The deflation is primarily caused by the low oil price. Wage growth is also not picking up. While unemployment is dropping there appears not to be pressure on wages with companies playing a wait-and-see game to see if consumer spending really does pick up. The zero to negative interest rates you get from certain offshore banks is having an interesting impact. Cash is no longer king. This is a war on cash and it can be found everywhere. In parts of Europe, you may not use cash for transactions over 1000 euros. In Louisiana it is illegal to pay for second hand goods in cash. Why is this happening – it boils down to liquidity. Look what happened in Greece. If ‘digital’ money was suddenly required as ‘physical’ money in large quantities, the banks would implode. Money laundering is going into the dark web, with the ever increasing use of bitcoin. A currency without a bank or a sovereign state. Europe declared last week that bitcoin transactions were ‘tax-free’. The world is moving way faster than regulation.

dow

Exchange rate

The rand dollar exchange rate has shown some steady improvement over the last month, falling back from the R14 level, and briefly touching R13 to settle on R13.64 on Friday. The exchange rate remains very sensitive to data coming out of China. There is no doubt that the double impact of the bloated civil service highlighted in the budget, and the student protests – that will have a knock on effect on the budget too – impacted the Rand in the later stages of last week. Before you dismiss the antics of the EFF in parliament last week as unique to us, check out Prime Minister’s Questions in the British Parliament sometime. Hardly a model of decorum either.

exrate

Other Indices
The various other indices are showing little change. All commodity prices are depressed, and no sign yet that they have stopped falling. In SA, the Rand Dollar exchange rate is a blessing for our commodity exporters. Without it there would be substantially more mine and plant closures. Gold,in rand terms for example is one of the few commodities to show a decent return this year.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 42, October 2015
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The South African Economy Stock Market

Taking strength from the previous week, the local Allshare index continued to climb last week, and while not back at the all-time high we saw in April, it is at least in positive territory year on year. This rise in stock market values has been seen across most emerging markets as fears of a hard landing in China dissipate, temporarily at least. There is also increased likelihood that interest rate increases in the USA won’t happen this year. Emerging economies continue to be extremely sensitive to this interest rate hike uncertainty. The low USA and other Western interest rates continues to drive those investors off shore looking for better (albeit riskier) returns. Obviously, as soon as those interest rates rise there could be a flood of capital back into the States. Bottom line, the volatility is here to stay and if you need to safeguard your capital it would be prudent to make your ‘asset allocation’ less aggressive. If you’re not sure how to do that, give me a shout.

alsi

Offshore Markets

Wall Street has rebounded to an 8 week high. Due to economic uncertainty, there is a lot of cash washing around the American economy looking for better returns (because you get nothing from the money market), and this has been one of the drivers of the improvement in the American and Western stock market indices and ours. The Chinese GDP data (if you believe it) is expected to come in at 6.8% again, and already there have been announcements of new stimulation measures into that economy. USA unemployment applications are at a 42 year low, but mixed signals stoke the volatility.

dow

Exchange rate

The Rand dollar is trading back at the R13 level, and the Pound at R20. The exchange rate continues to be highly sensitive to the strength of the dollar, and moves on the slightest suggestion of an imminent interest rate hike. The Chinese GDP data due on Monday could well see the rand give back much of the gains it has clawed back in the last 2 weeks.

exrate

 

Other Indices
The prolonged commodity price correction is coming home to roost, especially in the iron ore and steel sector. China has been ‘dumping’ cheap steel all over the world and steel industries are retrenching workers at an unprecedented rate. The West is stuck with their head between a rock and a hard place. Introducing trade measures to prevent the dumping of steel and other commodity products could well trigger reprisals. The last thing the global economy needs right now is a trade war with China. Brent crude saw a slight jump last week, but has fallen back to trading in the $50 range. The general consensus is that this level, or lower, can be expected in the medium term. Both Gold and Platinum saw improved valuations over the last two weeks, but year on year it is nothing to write home about, just enough to warm the cockles of a gold-bug’s heart – for a week or so anyway (if you’re one of them – there is a pill for that).

gold

If you’d like to see real-time graphs, a good place is: HERE

Week 41, October 2015
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The South African Economy Stock Market

Beware the slow erosion, the steady decline, in anything related to the economy because we start to accept that the new normal and become complacent.  Decline in our international ratings, GDP, erosion of the currency, morality (and increased corruption), job creation. it’s the ‘How do you boil a frog?’ scenario – in a pan over a low heat so he doesn’t jump out until it is too late. It is these slow changes that have a lasting effect on our economy, and behaviour. The new normal post 2008 is the age of mediocrity. The nasty volatility of the market should teach us one thing – flexibility is the key to survival. Have a plan B and don’t put all your eggs in one basket . Luckily inflation is being kept under control by the lower oil price despite the depreciating rand, without that our interest rate would have risen several percentage points and we would all be feeling a lot worse than we are at the moment. Despite the international volatility, there is every indication that the slowing of the economy we have seen since April may be bottoming out, but could bump along for a few months yet. This is a good time to cut any fat that is still holding you or your company back. Frugal is the new cool, this is not the time to buy new houses or cars – if you want to feel better about yourself have a spa day, buy a new lipstick or high-end whiskey. If you’ve got any assets sitting idle make them sweat or off-load them. Resources saw a resurgence over the last week, but don’t get too excited. This is more likely to be a ‘dead cat bounce’ rather than a sustained rally. Nothing in any of the resources markets indicates that the rout in that cycle is over. Commodity cycles typically last decades, unlike the usual every 7 years in the stock market. Most analysts are looking to 2020 before there is a sustained turn-around. Should you by ‘buying low’ in resources? Let’s put it this way – if you put R10000 in a bank and they offered you zero or negative interest rates for 5 years, then maybe they’ll increase it – what would you do?

alsi

Offshore Markets

A US interest rate hike is looking increasingly likely as the American economy continues to show strength. The mirror of the JSE versus the Dow shows how tightly we are hanging onto those coat-tails if nothing else it will help soften the landing for us. It is interesting to watch the play for SAB – they have turned down an offer north of $100 Bn. If you want an interesting read on the culture difference between the fun-loving Safers and dour Belge, go HERE. http://www.moneyweb.co.za/news/companies-and-deals/sabmiller-better-get-ready-for-a-ceo-who-doesnt-like-to-have-fun/ The air might be out of China’s bubble, which is good news for all emerging economies. The Shanghai composite is improving, but the ‘gambling’ mentality is still clearly present. $90Bn worth of shares in China were bought with borrowed money (the margin traders).

dow

Exchange rate

While the rand closed on R13.35 on Friday, the fact that it keeps testing R14 is not a good sign. As we have often seen in the past, once a psychological barrier has been breached several times, it soon becomes the new normal. The Rand has now traded above R15 to the Euro for a month. Expect petrol price uncertainty for the foreseeable future. Higher prices of imports are going to impact on your xmas shopping trolley.

exrate

Other Indices
Economists look at all sorts of indices to gauge economic health – including coffee consumption. Emerging markets in Africa and Asia have seen the biggest growth in recent years, but that is dropping off. Not great timing for snobby overpriced glamour coffee chains with pretentious names to launch in the country. Far cry from good-old SA Railway coffee of old with lashings of condensed milk. But I digress ( and show my age). Platinum continues to slide reflecting the distrust in the diesel car market specifically and poor new car sales prospects generally.

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 40, October 2015
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The South African Economy Stock Market

The quiet-ish few weeks are a good sign, the only people who like the market volatility are day-traders. What is so different? The China and resources problems are still here, the exchange rate is still pathetic and mines are under severe pressure. It boils down to ‘sentiment’. With less loadshedding as a daily reminder of our 3rd world status and fewer idiotic outbursts from our beloved leaders we all start to feel that ‘this too will pass’. Not even Mr Picketty’s pink-tinged ramblings about wealth equality can dampen the mood (apart from the fact that most people who bought his book didn’t get past chapter 2 of the pompous academic prose). Thank-you Mandela Foundation for bringing us his wonderful insights. The business confidence index surged strongly in q3, mostly because it came off the lowest level in 15 years – yes, it was even lower than it was in 2008. Businesses will be hoping for a good silly season 2015 which will set the tone for 2016. Another couple of weeks of moving sideways on the stock exchange and you could look at picking up some well priced stocks or moving some of your moderate funds into equity again – don’t go bottom fishing – those fish are so dead they aren’t going to float to the top again. get over it. Know the difference between Value and cheap and nasty – better still have most your investments managed by someone whose job it is to know what’s going on. By all means have your little flutter with your stock portfolio, but make sure you can lose 100% of it and it doesn’t impact your wealth.

alsi

Offshore Markets

If you have a look at the graph of the S&P it might give you some perspective on our own stock exchange – the US hasn’t recovered anything like the losses incurred on Black Monday. If you break down the American economy state by state, it’s the fracking states that are doing better than the others. To their credit, the frackers have brought their break-even cost right down to about $50 a barrel – making it extremely competitive. America is now very close to being fuel neutral – not requiring imports. So what? When they don’t need middle eastern oil, they care less about the politics of the region. Good thing/Bad thing? They sure aren’t having to live with the refugee/migrant problem (from that area anyway). Saint Angela’s “We welcome all the poor and downtrodden” lead to a massive surge in new migrants – surprise surprise! The flood could well only have just started (as Russia wades into the fray) and could well impact on “Schengen” economies. The UK is alright Jack, they will accept 27,000 refugees in the next 5 years – approximately the same number that entered Germany in one weekend. The timing couldn’t be better for the UK referendum on staying in the EU. The UK economy is doing better than both Europe and Germany at the moment – and the Pound is strengthening as a result (impacting our R/pound exchange rate. )

sandp

Exchange rate

Exchange rates continued to slide this week (R13.73 to the Dollar R20.81 to the Pound), but there are noises in the market that this is ‘enough’ and could start to stabilise. For all of us living with this market and exchange rate volatility there is just one bit of advice – mind your own business. Don’t buy a ticket for the roller-coaster, don’t lose your lunch, spend the time and effort making money. Have a plan, and stick to it.

exrate

Other Indices
Platinum continues to drift lower – mostly on concerns that the ‘Dieselgate’ issues that started with VW, and might spread further, will move consumers toward petrol powered cars. (Platinum is used in catalytic converters ‘cleaning’ diesel emissions. This week I have included the Gold price in Rand graph, just in case you were thinking that the exchange rate made it a good investment. The ‘return’ over 3 years is an awesome nothing. Nice to look at, comforting to hold, high maintenance to keep – sounds like a mistress, and we all know how that ends.

rgold). Gold is inching higher as it always is during times of uncertainty, now back at 3 year highs. Platinum is below $1000 to the dollar – a good indicator that the manufacturing sector is far from robust.

If you’d like to see real-time graphs, a good place is: HERE

Week 39, September 2015
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The South African Economy Stock Market

When a kid is quiet you have to worry what the hell they’re up to, it’s usually no good. So too with our stock market. On the face of it, it looks like a quiet week, but we are slowly slipping downward. We aren’t alone mind you. Have a look at the S&P index below, yes there has been a slight recovery from black Monday, but the trend is still downwards. The only reason it isn’t hitting headlines is that it is over time, and hidden in the statistics. Drops in the stock market are reported day on day, every day setting a new base. It’s like having a slow leak instead of kicking the bucket over. The effect is still the same. We are still approximately flat year on year, but in mid-October 2014  we had a nasty drop down to the 47,000 range so technically we could see a small improvement – or test that new low. There is so much volatility in the markets, hang onto that ‘moderated’ portfolio a bit longer, especially if you need to protect capital. Remember that even though the stock market is flat, it is likely that your investment is negative because of the fees – unless you’re doing it yourself (nerves of steel? 90% of individual investors don’t even make the ‘average returns on the market). The one bit of news you might of missed is that the Chairman of Naspers sold R1.5 Billion (yes, with a B,) of stock options. Not exactly a vote of confidence in his company or the economy!

alsi

Offshore Markets

You might be sick of hearing it, but China continues to be the biggest threat to global growth, especially us resource exporters. This is the new normal and if you keep on thinking that this is just another cycle and will eventually come right then buy some Kleenex futures, you’re going to need them. China’s economy is still ‘normalising’ after the bubble (let’s call it for what it is). It will start to stabilise as the government stands fast on the changes. That’s the great thing about not having a democracy, they will push ahead and don’t have to worry about being re-elected. The populace just have to suck it up. So unlike our thriving democracy. No, wait… Anyway, have a beer on me before the jewel in our crown, SAB, gets swallowed up by that other brewing behemoth out of St Louis, Missouri.

S&P

Exchange rate

The exchange rate is still on a mission to make “staycations” a fact of life for the near future and those toys you want to buy for Xmas way more than you expect. The rand is testing R14 to the dollar again and settled above R21 to the pound. As much as we would like to deny it there is an ‘El Nino’ weather pattern globally, and this is going to affect our agricultural exports. Poor timing! Poor harvests in some regions last year were the first indications of this cycle.

exrate

Other Indices
Brent crude has settled around the $50 level for the moment, which is great for us, despite the exchange rate. Imagine is we had the $100 crude price of a year ago with R14 to the dollar! The petrol price would be R25 a litre. The impact on the local economy would send it plummeting into a nasty recession (instead of slipping into it anyway- sigh.

brent). Gold is inching higher as it always is during times of uncertainty, now back at 3 year highs. Platinum is below $1000 to the dollar – a good indicator that the manufacturing sector is far from robust.

If you’d like to see real-time graphs, a good place is: HERE

Week 38, September 2015

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The South African Economy Stock Market

We’re not steering this ship. While we all might be patting ourselves on the back now that the ALSI is up at 4 week highs, we’re not driving this taxi, jumping red robots, switching lanes, causing accidents – for a change. We are just hanging onto the West’s coat-tails. This upward movement was mostly generated by traders who (correctly) bet against a rate hike in the States on Thursday. The problem is because everyone has been speculating on this rise now for 55 consecutive months, it isn’t factored into the market anymore. It will be an instant reaction when (and it is when) it happens. South Africa’s response to the need to boost growth and the temporary reprieve in the US interest rates is to focus on infrastructure expenditure (2010 anyone?) and ‘social reforms’ (note to government – social reforms cost money not make it). The mini-budget is due next month and the government has a nasty way of sneaking in nasty expenditure increases hoping nobody will notice. The deteriorating exchange rate is almost certainly going to result in ‘imported’ inflation – over which we have little or no control, and that will lead to interest rate rises. All emerging markets are feeling the pain, and the almost universal reaction has been to raise interest rates (Peru, Kenya, Uganda, China, Moldova, Turkey) – can we be far behind?

alsi

Offshore Markets

Hidden behind all the front page news on the tsunami of refugees and migrants in Europe, stock exchanges continued to track upwards in the west- mostly but China continues to slide, and probably will do so until the hot air is out of that bubble. Slowly leaking the hot air is preferable to the sudden popping that we have seen recently. The constant speculation on the US interest rate doesn’t help with global sentiment, and we all need the West to continue to be upbeat about their economies while the stock exchanges go for a ‘soft landing’. Even though it is just numbers, sudden declines have momentum just like a heavy wrecking ball and always results in over-corrections. With talks now of interest rate rises of 0.05% one has to wonder what all the fuss is about, just do it already. Friday saw some claw-back of the week’s gains on the back of a down beat Fed outlook on the global economy.

dow

Exchange rate

The Rand has come back from the all-time lows we saw last week when it briefly hit R14 to the dollar, closing at R13.30. If it follows the track of the recent past it will hopefully now look for a level that it will ‘settle’ at. Best case scenario we might hope for R12.50, but R13 is more likely. If load-shedding comes back hard, if the Cahora Basa downtime lasts longer than anticipated for example, then all bets are off. There is nothing like missing world cup games because of load-shedding to cast a gloom over consumer sentiment (okay, maybe not, you could always eat sushi and cry into your wasabi.)

exrate

Other Indices
The price of oil continues to be very volatile but seems to slip below $50 every time it tests that level. This depressed price will be hurting the smaller producers, especially Nigeria and Angola and that will have a knock-on effect with SA companies that have expanded in those regions. The high commodity prices enjoyed by African nations, including us, during China’s boom has largely been squandered and with no plan B for alternative sources of export, the pain is going to be long and hard.

 
 

brent

If you’d like to see real-time graphs, a good place is: HERE

Week 38, September 2015

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The South African Economy Stock Market

We’re not driving this ship. While we all might be patting ourselves on the back now that the ALSI is up at 4 week highs, we’re not driving this taxi, jumping red robots, causing accidents – for a change. We are just hanging onto the West’s coat-tails. This movement was as traders (correctly) bet against a rate hike in the States on Thursday. The problem is because everyone has been speculating on this rise now for 55 consecutive months, it isn’t factored into the market anymore. It will be an instant reaction when (and it is when) it happens. South Africa’s response to the need to boost growth is to focus on infrastructure (2010 anyone?) and ‘social reforms’ (note to government social reforms cost money not make it). The deteriorating exchange rate is almost certainly going to result in ‘imported’ inflation – over which we have little or no control, which will lead to interest rate rises. All emerging markets are feeling the pain, and the almost universal reaction has been to raise interest rates (Peru, Kenya, Uganda, China, Moldova, Turkey) – can we be far behind?
Hidden behind all the front page news on the tsunami of refugees and migrants in Europe, stock exchanges continued to track upwards in the west- mostly but China continues to slide, ad probably will do so until the hot air is out of that bubble. The constant speculation on the interest rate doesn’t help. With talks now of interest rate rises of 0.05% one has to wonder what all the fuss is about, just do it already. Friday saw some claw-back of the week’s gains on the back of a down beat Fed outlook on the global economy.
The Rand has come back from the all-time lows we saw last week when it briefly hit R14 to the dollar, closing at R13.30. If it follows the track of the recent past it will hopefully now look for a level that it will ‘settle’ at. Best case scenario we might hope for R12.50, but R13 is more likely. If loadshedding comes back hard, if the Cahora Basa downtime lasts longer than anticipated for example, then all bets are off. There is nothing like missing world cup games because of loadshedding to cast a gloom over consumer sentiment (okay, maybe not, you could always eat sushi and cry into your wasabi.)
The price of oil continues to be very volatile but seems to slip below $50 every time it tests that level. This depressed price will be hurting the smaller producers, especially Nigeria and Angola and that will have a knock-on effect with SA companies that have expanded in those regions. The high commodity prices enjoyed by African nations, including us, during China’s boom has largely been squandered and with no plan B for alternative sources of export, the pain is going to be long and hard.

alsi

Offshore Markets

China is still the major driving force across all global economies. The central bank is worried about cash outflows and foreign exchange is tightening. The official GDP has been downgraded, not that anyone believes it.  I think we need to resign ourselves to the fact that we are now in a ‘new normal’ and cannot rely on China to bail us out with our resources. Make no mistake they are buying and stockpiling those resources at these massively discounted prices and aren’t going to need to buy more for years. Retrenchment does nothing to help consumer and business sentiment, and yet the unions continue to demand double digit salary increases. Someone is smoking socks. The obvious opportunity lies in reskilling labour into the manufacturing sector – China and the rest of the east is increasingly uncompetitive The one move you might have missed last week that has major implications for us is the downgrading of Brazil to junk bond status from investment grade. This means that Western pensions, government departments etc cannot invest in those products in terms of either legislation, regulation or mandate. This is going to result in a wholesale dumping of Brazilian bonds and will significantly add to their woes. We are only one grade above junk, we could very easily be next.

dow

Exchange rate

The decline of the rand continues unabated. After flirting with R14 to the dollar, jumping over briefly in inter-day trade,  the Rand pulled back a bit but it is probably only a matter of time before it hits that level and stays there. The Rand/Pound breached R21 and has stayed there. There is that constant threat of the US increase in interest rates that might send us for a loop. Or not. This threat has been hanging over everyone’s heads for 18 months or more, maybe it has been factored in. The Rand is so skittish though I wouldn’t count on it. We will know on Thursday if there is an increase, I think it is going to be pushed out to December or later. The mini-China crisis worried Yellan.

exrate

Other Indices
I hope you enjoyed the lower petrol price increases because it looks like that will be reversed in October thanks to the depreciating rand and volatile crude oil price. We are starting to see the consolidation of shale producers in the States as smaller producers get gobbled up by the bigger ones. That isn’t going to please Saudi, and the stand-off is still on and prices of petrol will remain low – in dollars of course. That is going to help consumer sentiment in the west and put more money in their pockets – a good thing. We need them to grow and prosper and hang on tight to their skirt tails.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 36, September 2015

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The South African Economy Stock Market

The tumultuous few weeks on the various global stock exchanges has every one asking – is this a market correction or economic recession? There are a couple of things we can look for, and misconceptions that we should clear up. Firstly one is the difference and similarities between the stock market and the economy. They do feed off each other but they are not the same and often do their own thing. There is little doubt that global stockmarkets have been fuelled by excess cash created by the QE (quantitative easing) programs globally (except here). QE basically stimulates cash flow, printing money and stimulating inflation (a good thing sometimes). Early in the 2008 stalling recovery, interest rates were slashed to stimulate the economies, closing that avenue off to getting returns from interest bearing investments, so the only place to go was into equity – and we benefitted from that enormously with massive offshore inflows. What it did do though was increase prices of shares that were not directly related to improved earnings in companies. That is a ‘bubble’ of sorts, and bubbles burst, so a correction is natural. What about the global economies then? Ours, and that of all commodity exporting nations ( Oz included), is in a spot of bother. We have gone negative for the second quarter, two quarters in the red and we’ll officially be in a ‘recession’ – but company earnings are still going up (with the exception of resources and hospitality) so there is need to panic. This is the time to consolidate not sell-off. The only assets to sell off are the toxic assets that don’t show any hope for a long time. Resources, Commodities and probably shares with excessive China exposure (yes, that darling of the stock exchange over the last few years, Naspers).

ALSI

Offshore Markets

The sell-off that started in earnest two weeks ago wasn’t a blip, none of the stock exchanges have recovered from it. Remember that a 3% drop needs 6% just to get back in the same place, so a 3% drop followed by a 3% recovery only gets us half the way there. It was, and continues to be, a correction. China a learner driver, and we’re all having to take the bumper-bashings on the chin until they get it right (and that could take years). They are the second biggest economy on the world and they don’t know how this thing called “capitalism” works – to be fair does anyone? The volatility quietened down for the last 2 days of last week – because the Shanghai market was closed for a massive two day holiday 70 years after WW1 celebration. That volatility hasn’t worked its way out of the system and interference is only going to delay the inevitable. Greed is still a huge factor driving the Chinese market. This is just gambling in another guise. Savvy investors have bailed out of the market, paid back the loans and taken their profits. The rest are trying to clear every last cent off the table before it settles on the bottom in the expectation that the central government is going to continue to protect them (and increasingly they look like they might stop doing that). When the global markets settle there is going to be the opportunity to buy up ‘cheap’ stocks so don’t lock up your profits you’ve taken too tight.

Exchange rate

The Rand/Pound hit the R21 rate and the Rand/dollar is flirting with the R14 mark. This is going to have an impact on our ‘imported’ inflation and we can expect a volatile Rand Petrol price. If the government was serious about taking advantage of this exchange rate they would chuck those ill-conceived visa restrictions out immediately and channel some money from their other wasteful projects to massively stimulate our tourism industry abroad. Unlike the manufacturing sector that lacks skills and infrastructure, the tourism industry is ready to go right now.

exrate

Other Indices
Other indices: The price of oil is oscillating wildly. None of this ‘rise like a feather, drop like a stone’ that we have come to expect. It’s a super-ball thrown by a 2 year old in a tantrum, dropping 20% in a week, and then gaining 35%. Basically there is a stand-off going on between the US and OPEC. OPEC would love to bankrupt as many shale producers that it can (some are already dropping) but in the interim it is hurting their economies badly. This tactic could well backfire because as soon as Iraq and Iran come back on stream significantly ( and that is only months away) the supply-side of oil is going to increase again and prices are going to be under pressure again. As a day-to-day consumer here at home there is very little we can do about it. Assume that long term the price is going to go back up to at least $100 ( it was there a year ago!), doubling or tripling the price you see at the pump today (thanks to rand depreciation) and adjust your budget and make your next car purchase accordingly.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 35, August 2015

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The South African Economy Stock Market

Over the whiplash? Last week’s wild ride on the global markets was no joke, but interesting to watch from the side lines because perhaps they gave us a glimpse of what is coming down the line. Like every other economy out there, within 24 hours we started to recover, we haven’t clawed back the loses (nor has anyone else) yet – will we? Our stock market has been declining for weeks, Monday was just bigger than normal. We have been watching this trend since April. Last week’s announcement of a contraction in GDP below -1% confirms what most of us know, the economy is slowing. While western economies are faring better, we are in a ‘new normal’. The first increase in American interest rates is probably off the cards – again.At home, the load shedding earlier in the year has resulted in a cut in production, government sector salaries are increasing above inflation, the commodities sector is shedding jobs, agricultural output has dropped due to drought, and if analysts’ predictions are right, this is the beginning of an El Nino weather cycle so the drought conditions could get worse. This August’s above average temperatures come with a warning. Watch your water.

alsi

Offshore Markets

Why did it crash? It certainly wasn’t poor economic fundamentals – this is no repeat of the Lehman Brother collapse that started the domino fall leading to the Great Recession. There are a number of theories of why the sudden dip happened. It started with a correction in China very early on Monday morning our time. We know China has been driving the volatility for weeks, but why on Monday? If you’re trying to guide a massive behemoth of an economy, you should know it isn’t going to turn on a tickie. Even a small Citigolf on the highway needs time and space to stop, unless of course it hits a wall and goes from 100 to 0 in a nanosecond. You slam on anchors, you’re going to do damage. Dozens of stock exchanges that rear-ended the Shanghai stock market underline that. You change slowly, and wait for it to take effect, or suffer the consequences. The other factor that has been underestimated is the power of greed, specifically of inexperienced investors. In Western economies most retail customers who want to make a quick buck, the guys in the street, have had their finger’s burned in the stock market (day trading, options trading etc). The Chinese are going through that pain at the moment. Triple digit growth isn’t enough – they want more, and perversely the central government has been protecting them. When the Shanghai market tanked on Monday, while we were all still asleep, it started to effect the futures markets, and by the time the West woke up ‘Algos’ – computer algorithms – were in full sell mode triggered by futures indices and ‘stop loss’ levels (the automatic sell instructions built into computers that buy and sell shares). Algos don’t sleep. A possible contributing factor was that August is traditionally a slow month in the American financial sector – with many going on holiday.The fall was so hard and so swift that by the time the exchange had been trading less than an hour the buying had begun, probably thanks to intervention by real humans. The one interesting outcome is that computers, algos and systems controlling ETFs ( Exchange traded Funds, those trackers that are taking over the market overseas) battled to keep up. This isn’t a problem we have in South Africa yet, but one has to ask that at what time does the tail – ETFs – wag the dog – the stock market – because it has become so big? It doesn’t just track the market it IS the market.

dow

Exchange rate

The Rand exchange rate is headlines, I don’t need to tell you what has happened over the last few weeks, it is on every street pole. This should be good news for our exports, but of course those are either commodities, where the prices are at historical lows, or agricultural products that are battling with drought. Tourists should be flooding into the country, but thanks to the ill-conceived policies of government, that has dropped 25% and the hotel and resort industry is shedding jobs. Let’s hope sanity will prevail and those restrictions dropped. On the plus side, the rand has appreciated suddenly in the past, and it could do so again. Now is not really the time to be investing offshore, and certainly not as a lump sum.

exrate

Other Indices
Brent crude had a big jump this week on the back of the market uncertainty, but this jump is not likely to be sustained as there is still a huge oversupply. The low crude prices are hurting Nigeria badly, but are also hurting the big suppliers like Saudi Arabia. There is little doubt that the price of oil was manipulated lower by the big players in the east, trying to force shale-oil producers out of business in the States, but they are proving to be more resilient than was expected. Resources are still trending downwards and show no signs yet of levelling out. We are likely to see a nice fall in the petrol price on Wednesday.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 34, August 2015

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The South African Economy Stock Market

It has been a torrid week, not just on the JSE but right across the world – it is the Chinese flu and everyone is coming down with it. In the last few months it has been the ‘resource economies’ like us that has borne the brunt of the slowing down in China, but the devaluation of the Yuan is at the core of the new wobbles on the global stock exchanges – including their own. The JSE is now heading for 49000 and well down year-on-year and flat for the year. Gold mining is the only index that has bucked the trend on the back of a weak rand and improved gold price, but with impending strikes that could be short-lived.

Alsi

Offshore Markets

The constant, clumsy intervention of the Chinese government in the Shanghai stock exchange has resulted in the marginalisation of the exchange in any meaningful indexes. This is not because the exchange or specific stocks are suspended if they fall too far, too fast, but because only the man on the street is protected which is a market bias they can do without. China is banking on stimulating consumer demand to bring its growth back up to the double digit status it enjoyed in the past. They are probably going to find that it isn’t easy – buying tons of resources and putting people to work building stuff is much easier. The devaluation of the Yuan is increasing the fears of deflation in the West. Yes, this is a problem (read HERE if you want to know more about deflation). All the American stock exchanges turned South this week, with both the Dow and S&P now negative for the year

dow

Exchange rate

The free-fall of the rand against most major currencies has once again been the story of the week. The R20 to the pound is already well entrenched, and we are well on the way to hitting R13 to the dollar. These aren’t just numbers, they are psychological limits that once breached, more often than not, sees a further weakening. Of the basket of emerging economies we have not been the worst hit, we’re about average with the Turkish Lira faring worst

ex rate

Other Indices
Brent crude is still trading below $50, with speculation that it could even drop further in the short term, especially if Iran comes on stream at the level expected. Gold has been improving, which is to be expected with all the uncertainty in the global markets – it is the safe haven in times of uncertainty but not a great investment in the long term (cash does better).

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 33, August 2015

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The South African Economy & Stock Market

When our economic woes get onto international news cycles you know it’s been a bad week. Obviously the main story has been the exchange rate now dropping below 14 year lows. The good news is that the weak rand should see a big bump in tourism. Oops, silly me, I forgot about the visa issues. My bad. I guess the other emerging economies that have also been hard hit by the devaluation will pick up the slack. The All Share Index keeps drifting lower, as does the Dow. Is drifting better than plunging? Probably in most things except cleavages.  It is interesting to note that this trend is not mirrored in the S&P 500, which is drifting sideways and not down – in other words the big caps found in the Dow (30 biggest stocks) are suffering more than the medium caps found in the 500 of the S&P 500. The market breathes in and out, it has been breathing in for 5 years, the question is not if it is going to breathe out, but how forcefully and for how long.

alsi

Offshore Markets

China is still the word on everyone’s lips, not Greece. What is worrisome is that there appears to be far too much heavy-handed intervention, hardly surprising from a country so new to the concept of ‘capitalism’. The investors are unsophisticated and the strategists inexperienced. The devaluation of the Yuan was excessive, perhaps not having learned from the rest of the world that small .25% increments are more effective than 3% in 2 days. This has hastened the flight of capital from ‘resource rich’ markets – ourselves, Brazil, Oz among others. The Chinese stock market is not for investors, it is for speculators, the good thing (for the small people) is that the government is protecting the downside. This episode has put China’s dreams of joining the serious global stock markets back years.

sandp

Exchange rate

The exchange rate was the biggest economic news of the week. In case you missed it, the Rand/Pound is now north of R20 to the Rand, R12.82 to the Dollar, R14.22 to the Euro. How low can it go? Whenever you see a massive fall like this it is natural to think it will last forever, but that is not necessarily the case. The Rand has been gradually depreciating against the western economies which is completely natural based on the inflation rate discrepancy of 4-6% (or more in previous years). Big oscillations like this often revert back to a mean. If you’re expecting it to go back to R7 to the dollar, have a look at the linear regression over the last 5 years here and be realistic. If you’ve been procrastinating about a big ticket import purchase, it might be time to get it before the ‘cheap’ stock runs out.

exrate

Other Indices
Brent crude is sinking back to the levels we enjoyed at the beginning of the year – unfortunately with a more favourable exchange rate but they DON’T cancel each other out. Check the graph of the RAND price of crude – if we don’t see another petrol price drop next month then they are fiddling the books (again).

 
 

randbrent

If you’d like to see real-time graphs, a good place is :HERE

Week 32, August 2015

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The South African Economy & Stock Market

The mining sector is under severe pressure. Although they only contribute fraction to the GDP compared to the past, they employ hundreds of thousands of people. The number of people employed in gold mining has dropped by 2/3rds in the last 20 years (since 1994), but another bout of retrenchment is inevitable. This will have a ripple effect on the economy, especially from sympathy strikes. The biggest effect is on direct foreign investment. The JSE is very volatile but is still on the road to nowhere right now. One sector that is bucking the trend, and propping up the rest of the market is the Financial sector. Part of that is thanks to the small rise in interest rates, but less bad debt is also helping. Industrials have been bucking the trend for a year. Both of these indicate a better economy than we might expect with the doom and gloom you read about every day. There is no doubt that the industrial and manufacturing sectors are being hampered by the Eskom crisis, with no end in sight.

Alsi

Offshore Markets

The US stock markets are drifting lower. The trend, usually measured as a moving average (the lines on the graphs below) is showing a definite downward trend. Part of this will be in anticipation of increased interest rates (as is the withdrawal of investment from emerging markets). China continues to cause concern. Exports continue to drop, leading to speculation that more stimulus will be required to prop up the economy. Part of the problem is the strong Yuan – a non-floating currency linked to the dollar. The volume of imports increased, but not the value, as China takes advantage of very low resource prices.

dow

Exchange rate

Emerging markets – like us – continue to be under pressure and devaluation of those currencies is seen across the board. If the US increases interest rates next month as expected, then this trend could worsen. The Rand/Pound is flirting with the R20 level ( R19.53) and the Rand Dollar is at a 14 year low ( R12.63).

exch rate

Other Indices
Brent continues to slip ($48.61), which is good news for us – not just at the pump – but for Eskom too as they try and keep lights on with alternatives to the coal plants. Some pundits are predicting prices as low as $30, albeit not in the long term. Enjoy it while it lasts. Resource stocks have been holding back the JSE for several years. In terms of market capitalisation they are some of the biggest on our market – the Anglo’s, Billiton, Kumba, Sasol. This can obviously affect general equity funds, especially trackers or ETFs. Look for funds that cap the maximum exposure to a single share or sector to hedge this over-exposure to resources. Remember that ‘cheap’ (low PE ratio) might just mean cheap and nasty.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 31, August 2015

wordle 2

The South African Economy & Stock Market
The JSE continues to track sideways, looking for optimism outside of the country. Resources, that form such a big part of our Top 20, weigh heavily on the index. Despite the pessimism, industrials have quietly been gaining ground and offsetting the downturn in resources. As tempting as it might be to ‘follow the money’ as soon as you start trying to ‘call’ a sector you investment starts to look more like a gamble, so fess up to it and don’t fool yourself and you’ll be fine. Enjoy the small drop in petrol price next week, although the price of crude is dropping, so is the rand. Consumer disposable income will be constrained as interest rates rise, and if the DTI has its way, unsecured lending will probably drop by 25%. While this will cause hardship in the low end of the market, it will also go a long way to stop exploitation of the financially uneducated, and hopefully curb the climate of instant gratification that plagues the wealthier community.

indi

Offshore Markets

The Dow, which has also been tracking sideways for a long time, with the odd rally and correction, is drifting lower. There is a general consensus that there is a global slowdown, and that is not good news for us. It is not just the US employment numbers that are scrutinised, but the payroll. There is no point in adding hundreds of thousands of jobs if salary increases are stagnating because of a glut of workers that aren’t going to fight for more, happy just to have a job. A lowering of expectations as it were. One silent trend is the re-entry of ‘retirees’ into the US job market, who are less ambitious, will work for less, yet have the skills and work ethic. Standards of living are not increasing.

dow

Exchange rate

The Rand dropped to a 14 year low against the dollar, and it isn’t looking much better against the Western economies. All emerging economies are under pressure, not just us. Last year we weakened against a strong dollar, but held our own against the Pound and Euro. 20 of the top 24 emerging currencies have devalued in the last 6 months. The repo rate was increase was supposed to stabilise the rand. Nice try! The Reserve bank is walking a fine line. If it increases interest rates too aggressively, it could kill the economy. If it doesn’t there might be a flight of foreign capital. Retrenchments and potential strike action in the mining sector will be a blow to the economy.

rdollar

Other Indices
Commodities are still in a glut and stockpiles continue to grow. Brent Crude is drifting lower, and as Iran comes on line this could get worse. Good news for us, bad news for oil producers. the US will be affected, but it is the smaller producers like Nigeria that are already suffering. The price of raw commodities like iron, coal, gold and platinum are still drifting lower  Post 2008 we are seeing a new normal in commodities, and this underlines the danger of relying on ‘raw commodity’ exports without any value-add. Brent Crude is down at $53 and Platinum at $983.

 
 

resi

If you’d like to see real-time graphs, a good place is :HERE

Week 30, July 2015

The South African Economy & Stock Market

w50 log
The Economy is still wavering at a cross-roads. With no growth year on year, commodities still under pressure, some major strikes on the horizon, load-shedding the new normal and an interest rate hike, the chances of a significant correction is pretty high. Despite the apparently improving American economy, the stock exchanges are battling, and we are inclined to take our queue from that. Commodity companies – among some of our biggest employers are under significant pressure. Lonmin’s plans for substantial retrenchments has come as a shock to Cosatu, but nobody else. The DTI dealt a significant blow to the micro-lending industry last week, slashing the maximum interest that can be charged. The industry had been fighting for more fees, but the DTI did the opposite. This will have an impact on provision of credit to the poor, but balanced against the extortionate rates, a reversion to traditional values and not supporting instant gratification can’t be all bad.

alsi

Offshore Markets

The Dow (USA) was significantly under pressure last week closing well down by Friday. The only bright light was Amazon, with shares lifting 18%. Amazon is now the largest retailer in the States, Walmart now coming in second. For a company that has no brick and mortar stores, it is certainly a turning point in retail. Greece is a problem postponed. It’s manufacturing and agricultural sectors have been decimated since joining the EU and there is almost zero prospects of it ever crawling out of the hole.

dow

Exchange rate

The rand has fallen to a 14 year low against the dollar. This is a result of a sell-off in currencies linked to commodities – like us – on the back of growing concern over China’s economy. The concern is that double digit growth in China is a thing of the past. It is much easier to stimulate an economy by building massive infrastructure, but they have built enough for the next 50 years. Getting consumers to spend is a far more difficult proposition. The repo rate was increased by .25% on Wednesday. If it was hoped that would stem the exchange rate erosion, they failed miserably. Bank stocks will benefit from the increase but consumer spending will be under strain. Unfortunately increases in interest rates is seen by government and the reserve bank as a problem for the ‘rich’ who have loans and bonds so concerns fall on deaf ears.

exrate

Other Indices
The oversupply of commodities cannot be stopped overnight. Mines take years to come online, and those started 5 years ago during the boom are only now coming online. In other words things could get worse before they get better. The oil price is now trading below 60 again. Once Iran comes back on line, this price could track even lower.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 29, July 2015

The South African Economy & Stock Market
The All share index rebounded sharply, as did most global markets, on better sentiment around a Greek resolution (or perhaps just a postponement of the inevitable) and very little contagion from the drop in the Shanghai index. Some of those resource ‘gilts’ like Anglo and Billiton have lost their shine, to say nothing of ailing Kumba. This is a good reminder that when you invest in stocks, be diversified, and the old adage ‘buy and hold’ doesn’t apply anymore. Investments have to be structured and managed by someone with an ear to the economic conditions. The economy seems to be ‘sleepwalking’ into recession, slowly ever lower every month. One nasty shock, or prolonged strike could tip this over the edge. Consumer and Business confidence is key. It is such an ‘airy fairy’ concept, but until consumers are confident in their jobs and go out and spend, and businesses hire more and invest – the economy can’t turn round.

alsi

Offshore Markets

Sanity prevailed in Greece, but the relief is likely to be short-lived as there are very little prospects of the Greek economy improving enough to even start to make the debt repayments – just keep rolling them over. The solution is not a done deal, and when push comes to shove, Tsipras is likely to lose his job, and the ordinary Greeks will dig in their heels and take to the streets. Tax collection in Greece has always been poor, it could trickle to next to nothing. The massive 30% drop in the Shanghai index was stopped by some ‘unusual’ and uniquely Chinese intervention which will have tainted its credibility as a true capital market. It is now highly unlikely the Shanghai index will be allowed to join the MCSI anytime soon, it’s presence on the Emerging Market Index might also be in doubt.  (The world index of developed nations).

dow

Exchange rate

The exchange rate has stabilised somewhat compared to last week, ending Friday on R12.36 – it is hardly something to be cheerful about. This time last year we were at R10.50. Despite all the woes in Europe we are even losing ground against the Euro. An interest rate rise might stabilise the exchange rate – but it might also tip the economy into recession. Rock and a hard place.

randdollar

Other Indices
The Reserve Bank is likely to increase the repo rate, if not next week then soon. Although it is likely to only be 0.25%, on the back of sinking consumer and business confidence it is unlikely to be well received. Brent crude is still down, which might be good news for our petrol price, and not just because of the exchange rate – there seems to be very little correlation between the rand price of oil and rand petrol price in the last few months. It looks suspiciously like creative accounting, and analysts and economists are starting to chirp.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 28, July 2015

The South African Economy & Stock Market
Despite the fears of an emerging economy backlash from Greek and Chinese economic problems, there wasn’t a massive flight to safe havens like the dollar or yen, and although the Rand flirted with the R12.60 to the dollar level again, the Allshare dipped and recovered over the last week, leaving it in almost the same place as last week (financial shares, especially banks were hardest hit.) The financial index rebounded though, and is trading above the levels of a month ago. The threat of banks closing and defaulting – even if it is in Greece – will do that). The movement in the Allshare almost exactly mirrored the Dow. A couple of interesting ‘policy statements’ and opinions are creeping into the South African economic dialog. Firstly a substantial increase in the minimum wage. Squeezing business till the pips squeak. In an era of massive and growing unemployment increasing the minimum wage is going to result in more unemployment. The wage pot isn’t going to get bigger magically overnight, fewer people will be paid from it, that’s all. Secondly talk of increasing VAT in February because SARS can’t meet budget demands. What has caused that? Ever increasing government appetite.  A massive increase in the number of government employees and above average increases. We are 5 years into one of the biggest bull runs in history but the average man on the street doesn’t think we ever came out of recession.

alsi

Offshore Markets

As Greece and Europe played chicken with the Grexit last week, and it is looking more and more likely that that ‘can’ will be kicked down the road, yet again, all eyes turned to China. The massive 30% drop in the stock-market over the last 3 weeks almost went unnoticed until the contagion started to hit Hong Kong and other Asian markets. It is the second largest economy in the world – why wasn’t everyone shuddering in their boots? Probably because there is very limited foreign exposure to the Chinese stock exchange and the bubble was fuelled by millions ordinary Chinese looking for better interest rates than were available from savings. In the West, chunks of the investments come from big mutual funds and investment banks, the stock exchange in China is new and a ‘capitalist’ phenomenon that has still to mature. Despite dropping 30% the market is still up over 100% year on year. The infrastructure boom in China is pretty much ‘done’ – hence the drop in resources and commodities – and the Chinese government is trying to stimulate consumer consumption – which is the main driver of GDP in the west. The government intervened to prevent any further stock losses in China, and there is little doubt that speculators ‘shorting’ the stock were largely to blame.

dow

Exchange rate

The exchange rate had a bit of a wobble again over the week on fears of Greek contagion on emerging economies, but that lifted a touch by week end, but still closed on an ugly R12.45, R19.28 to the pound.

randdollar

Other Indices
Resources and Commodities continue to be under pressure, and the indices reflect that. Iron Ore has been very hard hit and ArcelorMittal (formerly part of Iscor) that employs 4500 people is having to look at retrenchment. China’s infrastructure boom of the last decade is over, it is estimated they don’t have to do any more for the next 50 years. The Chinese government is now looking to domestic consumption to boost the economy so don’t hold your breath for a rapid recovery in basic resources. Even Brent Crude is below $60 again.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 27, June 2015

The South African Economy & Stock Market
With all eyes on Greece over the last week, we have been given a bit of a respite. The ALSI is approximately in the same place, but resources have been trading lower, yet again – down 4.7% in the month. The global response to the ‘no’ vote in Greece will only be felt later today, and it is highly likely that all bourses are going to drift lower (Asia is already) – with the possible exception of the US. The global brand of course will be effected, but the American consumer confidence rules the American stock exchanges, and concern with anything happening outside of their borders is not their forte. A word of warning. Greece got into this mess by doubling the number of government employees since 2000 and increasing benefits – in their case pensions – in the double digits. Sound familiar?

alsi

Offshore Markets

The resounding ‘no’ vote in Greece while effectively meaningless and a vote on an expired offer was a vote of confidence for Tsipras, which is what he wanted. It may however signal the beginning of the Grexit, which will be painful and protracted manoeuvre and is by no means a done deal. The biggest worry is the financial sector. The banks are on their knees, and the ‘capital controls’ in place (60 Euros a day) is hurting the Greek economy. No Euros are coming into Greece, and Tsipras might be forced to print drachmas in a hurry – which will be very messy. Meanwhile there is talk of China and Russia sitting in the wings, always in the market to take-over another country in one way or another. The whole EU, including the UK, has massive exposure to Greece – in the Billions of Euros and when banks stop lending to banks recession usually follows. Everyday Greeks are going to have to start defaulting on their ‘obligations’ and this will constipate the economy even further. We are living in interesting times, take your sea-sickness pills. The Chinese stock exchange has shed a massive 30% in the last few weeks, and that news has gone almost unnoticed. China has announced a slew of measures to reverse this, and this could mute the East’s response to the Grexit news.

dow

Exchange rate

The Rand dollar has drifted sideways over the last week, everyone in the ‘wait and see’ mode. Unfortunately the ‘no’ vote is likely to see a flight of capital out of risky economies (Yes, we’re one of them) into safe havens – this is already evident in the East with safe-haven Japan the only bourse trading up.

exrate

Other Indices
In other indices, it is likely that Gold could tick up this week as nervous investors seek safe havens. Brent crude is down at $60, when combined with a slightly better exchange rate may be a few cents off our petrol price next month – maybe enough for a chappie or two. Consumer confidence is down again, unsurprisingly.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 26, June 2015

The South African Economy & Stock Market
Last week I spoke about the classic ‘head and shoulders’ pattern on the stock exchange that is often a precursor to a significant correction – that is continuing to play out. Add to that the over-valued shares and little indication that the economy is improving – taking some of the profit ‘off the table’ and having a more moderate asset allocation (less equity, perhaps 75% rather than 100%) might be prudent. It is highly likely that interest rates are going to rise ( which alone will impact on the stock exchange), and along with increases in fuel and utilities, household disposable incomes are going to be negatively impacted.  Petrol price is going up by 3% again on Wednesday, thanks, once again to the declining exchange rate. There is still no clarity on the additional 12.5% that Eskom is trying to weasel out of NERSA with thinly veiled blackmail and ‘total blackout’ doomsayers (unlike loadshedding it would not be a matter of flicking switches on and off – it would take 2 weeks to get the grid back up). I think most of us have hoped that load-shedding will magically go away like it did in 2008, but it isn’t.

alsi

Offshore Markets

International news this week has been preoccupied with Greece. If Greece exits the Euro the contagion will spread (with Portugal the possible next in line and a far bigger problem than Greece) and could put an early brake on the Eurozone recovery. The big problem is that more loans to Greece will only go to repaying old loans. Much of the debt has been caused by the bottomless pit of pensions and the public sector – ending or reducing either of them is political suicide. It is looking increasingly likely Greece will default sooner or later. Ordinary Greeks continue to haul all their money out of banks. Should Greece exit the Euro, the ‘drachma’ would instantly devalue making those loans even more expensive and the likelihood of them ever being paid even more remote.

dow

Exchange rate

The Rand Dollar has eased off the R12.60 level it was testing earlier in the month. Analysts indicate that this has been in response to a possible resolution of the Grexit. I hope not, because if it is the worst is far from over. Technically Greece will default if this amount isn’t paid by Tuesday 6pm, Washington time. Things might be in a holding pattern until after the Greek referendum on the 7th of July.

exrate

Other Indices
Resources have been in a holding pattern for the last week, but there is no sign of a light at the end of the tunnel. The iron ore mining sector is the hardest hit at the moment, right across the world, with mine closures and retrenchments. There is a lot of ‘value’ in this sector but you either have to be very brave or foolish to do any more than dip your toe in the water. Hopefully it will turn around. One day. The extortionate wage demands in the mining sector will have one unavoidable outcome, the loss of thousands of jobs, conservatively estimated at 50,000.

 
 

plat

If you’d like to see real-time graphs, a good place is :HERE

Week 25, June 2015

The South African Economy & Stock Market
The volatility in the JSE has settled down over the last week, and perhaps poised for a smallish rally before we see a significant correction. (The technical analysts call this a ‘head and shoulders’ pattern, at the moment we have the left shoulder and the head.) There is no doubt that many of the shares are over-valued, and the cheap shares are cheap and nasty. The economy is far from robust, but interestingly the rating agencies are becoming more positive in the outlook, and the improvement in retail shares reflects this. One of the things to watch over the next couple of weeks is the wage talks in the gold sector. Gone are the days when we were the world biggest producer (1983, 63%), we now produce less than 6%. The wage demands are in the 80-100% range, which, if successful will have the inevitable effect of yet more closures. I’ve said so before, and I will again – if you want gold in your portfolio go for a gold ETF, not a mining share. An increase rate hike is inevitable, but is likely to be ‘shallow’, perhaps 50 basis points ( ½ %).

alsi

Offshore Markets

One bit of offshore news has dominated the market over the last week – the GREXIT. The standoff continues. The ladies in the ring (Merkel and Lagarde) are digging in their heels looking down their noses at Yanis Varoufaki (Greek minister of finance) with his leather jacket and motorbike looking every inch the rebel. The UK will be watching this very closely, especially with the promised referendum on the Brexit, not just from the Eurozone (the UK doesn’t use the Euro) but from the entire EU. Greeks are hauling money out of the banks in the millions – how long can they survive? A Grexit will reverberate throughout the world – and don’t think we will be immune.

dow

Exchange rate

The Rand is still very weak against the basket of currencies across the west. The Rand/Pound is now at R19.23 and the trend is still down. The R/$ is up a tad to R12.15. Both of these indicators are due to a play between the major currencies and we are just being swept along like flotsam and jetsam, occasionally shooting ourselves in the foot. The exchange rate makes it difficult to invest offshore, and of course ads to the potential volatility enormously. The growth rate in offshore investments are firmly in single digits, often the low single digits. Our currency can appreciate/depreciate in single digits in a day, doubling or wiping out your annual growth every time it moves. If you really want to make sure there is an offshore nest-egg for your kids, or on retirement the new Discovery Dollar products (premium paid here, linked to exchange rate, but paid-out offshore) may be worth looking at (give me a shut if you want to know more).

rdollar

Other Indices
This week I have looked at platinum rather than gold or oil. Unlike gold where we have dropped to a pathetic 6% of production, we still produce 80-90% of the world’s platinum, and the US imports 90% of the world’s supply of ‘platinum group’ supplies – ie also Rhodium, Palladium and others. Almost all of this is for industrial use, with 35% going to the automotive industry for use in catalytic convertors. Japan uses 30% of it’s import for jewellery. One of the reasons we are not seeing price increases is the very slow global ‘turnaround’ post 2008 (depressing the demand for both jewellery and autos), use of stockpiles and recycling.

 
 

plat

If you’d like to see real-time graphs, a good place is :HERE

Week 24, June 2015

The South African Economy & Stock Market

Standard and Poor decided to keep South Africa’ rating where it is (BBB-), which is a relief. Further downgrading of our rating would have disastrous effects, there would be a flight of capital as offshore investors are no longer permitted to use our bonds in their investment portfolios. The pressure is on inflation, thanks to a depreciating rand and way above inflation increases from Eskom, among others. This is likely to see an interest rate rise as early as July. The ALSI is now 8% off where we were just a few short weeks ago. That means we need a 16% increase just to get back into the same spot. If you’ve been rebalancing your portfolios over the last weeks, then this dip will have been much less. If you take 2 Coronation funds for example, Equity and Balanced plus, the year on year growth rates are 3.8% and 7.7%
While there has been some market exuberance over the last couple of years, there does appear to be a ‘new normal’ where the upswings are still muted by the 2008 hangover, giving us a better chance to have a soft landing. Markets go up and down, they breathe in and out. Most of us would far rather it was the breathing pattern of a fit athlete on a gentle walk than that of a couch potato being chased by a tiger. Have a look at the ALSI versus the DOW ( in the header above or HERE) and ask who has taken one too many trip to the buffet table.

alsi

Offshore Markets

The washing quantitative easing (QE) out of the offshore economies is going to effect the emerging economies more than anyone. The net effect of QE was the substantial increase in the supply of money in the economy, in an attempt to boost the economy ( USA for example) and ignoring the fact that the populace that was way over-indebted (as is ours – before we get too smug). All this money had nowhere to go, tiny single digit interest rates offshore were unappetising, and we have benefitted enormously from that. The potential for a Grexit is still looming large. The IMF have walked away from talks and Europe and Greece are in a standoff, waiting for the other to blink first. At stake is a 1.6 billion Euro loan that Greece will have to default on unless it can roll it over or get another helping hand. China appears to achieved the impossible – a soft landing. Often government intervention in an overheated economy results in a nasty, sharp contraction, but China is well poised for the 7% growth it has targeted. Not that everyone believes the numbers that are usually ‘managed’. Want local exposure to the Chinese market – buy Naspers. The massive gains in this stock are almost 100% thanks to its part- ownership of the IT company Tencent. A word of caution though, there is every sign of a massive IT bubble in China. Tencent’s PE of 55 is tame compared to some of the ratios in the thousands.  

sp

Exchange rate

The exchange rate is still going in the ‘wrong’ direction and is going to impact on our balance of payments. Expect the cost of imports to start rising, there is a limit to how much of the margin retailers are prepared to sacrifice just to get growth and stock turn. The above average government sector pay increases are going to make things difficult in union dominated industries. Those are dominated by resources and commodities that are already squeezed by low prices and demand internationally.

exrate

Other Indices
Brent crude oil is still trading around the $60 mark, but our weak rand will mean that the price at the pump is going to continue to increase. Gold is still drifting lower, in dollar terms, indicating that the dollar strength is still a factor. When the dollar weakens, then gold is likely to tick up. The one great unknown in gold reserves is the true holdings of China. Officially the holdings are about 1/10th of America, in reality it may in fact be equal. If that was ever confirmed it would be a currency game changer, and see the dollar toppled in favour of the Yuan Renminbi

 
 

index

If you’d like to see real-time graphs, a good place is :HERE

Week 23, June 2015

The South African Economy & Stock Market
The JSE’s march on down continues, the reason why this isn’t hitting the headlines is that it has been slow and steady, but when you look at the annual chart you can see just how steep it has actually been. We are now down back to the levels of October last year, year on year we are only up 2.2%. This is not unexpected, but nor is it a time to panic – yet. The rise in our stock exchange is not a reflection of our economy – that is seriously in the doldrums. It reflects the massive foreign inflows looking for returns because they aren’t getting them elsewhere, and the huge pension inflows from the private and the public sector that have nowhere else to go. As recommended in previous newsletters, short term funds (less than 5 years) should be in ‘moderate’ versus ‘aggressive funds’. If you try and catch the top of the market, beware. It’s like trying to catch a falling knife – you’re likely to get hurt. We have had a good bull run – up 88% in 5 years – and this is not reflected in the strength of our economy. Prices of stocks are going up, but the earnings aren’t. Frankly it is a mirage.

alsi

Offshore Markets

There is no doubt that Yellan is chomping at the bit to raise interest rates, and that is likely to happen in the next few months – as soon as she is confident that the US economy is on a sustained upward trajectory. All emerging markets, not just ours, is likely to respond with a severe correction as funds flood back to the US. Last week the UK and Europe both saw their stock exchanges fall. The fear over Greece continues, not helped by them missing a debt deadline and deciding unilaterally to aggregate June’s payments.

dow

Exchange rate

The Rand, like many other currencies is more influenced by dollar strength than anything we are doing right or wrong. The latest depreciation was in response to the stronger than expected jobs data coming out of the US. The Americans are adding about 250k new jobs into the economy a month. The only increase we have seen in employment in the last few years has come from the government – and their ‘inflation linked’ salary deal has alarmed economists. Unless the bloated civil service is brought under control, we are all going to be in a whole lot of pain (guess where the money for those salaries comes from?)

randdollar

Other Indices
Remember the days when resources used to be our salvation? Not anymore. It’s not that they are running out but mixed messages being sent out by government in terms of mineral rights prevents investment, especially foreign direct investment. One little discussed resource is shale oil, with a massive find in the karoo. Environmental concerns aside, the government has introduced confiscatory conditions frightening off serious investors.  The resource index is still bumping along the bottom, with the odd brief rally – probably fuelled by speculators and day traders. ironically the 2000 – 2008 bull run was lead by resources. So-called ‘Value’ funds are heavily invested in resources because they have a low PE ratio – price to earnings. Value asset managers refer to these as ‘cheap’ shares. Cheap? Yes. Nasty? – absolutely. Expect things to turn round when China shows growth back in the double digits (currently at around 6-7% – we’re less than 2%!)

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 22, May 2015

The South African Economy & Stock Market
When asset managers and professional investors get nervous, it’s time to take heed. Yes, there could be money still on the table, but if this is a soft landing, that could be because the big players in the market are gently offloading stocks so as not to shock the market, and they are being picked up by small and inexperienced investors oblivious to the warning signs. Our economy is in trouble and consumer spending is depressed. Continued rises in prices – petrol, rates, electricity – and the looming possibility of interest rate increases are all weighing heavily on the economy. Our already pathetic 2% growth projection for this year is likely to be revised downwards.

alsi

Offshore Markets

In years gone past, something like an interest rate rise (as anticipated ‘sometime’ in the US) would be built into the price of stocks, and everyone would go on as usual, and there would barely be a flutter on the stock exchange when the change came along. Perhaps because there have been so many false starts, and the fact that the interest rate lows have gone on for so long, but the global markets oscillate to every rumour and over-analyse Yellan’s every utterance on US interest rates. When it does happen, it is going to have a huge impact globally, with emerging markets probably most effected by flight of capital into American ‘safe havens’. Although the American stock exchanges are fairly volatile, the moving average is still up (ours isn’t).

dow

Exchange rate

Having strengthened somewhat two weeks ago, the Rand is slipping against all the major currencies again. Foreigners are selling out of our bonds at a higher rate, expect this trickle to turn into a flood if interest rates start rising offshore. A year ago the Rand/Dollar exchange rate was bouncing around R10.50. The pattern for the last few weeks has been similar, but around R12.00

exrate

Other Indices
Although the Repo rate remains unchanged, Reserve Bank governor Lesetja Kganyago warned that “the deteriorating inflation outlook suggests that this unchanged stance cannot be maintained indefinitely”. Commodities are still in trouble, with iron ore prices still dropping because of the global glut (due mostly to depressed demand from China). Brent oil prices are moving gently around the$60 level, with little indication that there is a major move on the horizon. Our increase in the price of petrol is more as a result of deteriorating exchange rate than rise in the price of crude.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE

Week 20, May 2015
Week 21, May 2015

The South African EconomyStock Market
There is a growing concern that the bull run we have been enjoying since the beginning of the year is sliding into a correction. The concern is with the PE (Price/Earnings) ratios of most of the top counters. The price has been rising steadily, but the earnings have not followed suit. There is no doubt, the economy is struggling and consumer confidence is waning. Sustained load shedding is hurting business, above-inflation increases demanded by unionised and government workers won’t help and our international rating is just above junk bond status. Why does that matter? At the moment our govt and corporate bonds are ‘investment grade’, many offshore entities have this as a requirement in their investment mandate. If we become ‘junk’ then millions of rand will leave the country and impact our exchange rate even more. As it is international money coming in to buy our bonds has slowed down considerably.  The Reserve Bank chose to keep the interest rates unchanged last week, but it was a split decision. There is pressure on the inflation rate from weak exchange rates, above-average wage increases, increasing food prices, 12.5% energy increase – and that’s before the doubling of that they are asking for ( and let’s hope sanity prevails).

alsi

Offshore Markets

The nearly 6 year interest rate hiatus in the States might well end this year. The US economy is picking up again after their sluggish first quarter start, but Yelland doesn’t want to nip that in the bud with a rates rise (are you listening SARB?) The possibility of a Greek Exit from the Eurozone (Grexit) is back on the agenda. Unless they can make a deal with their creditors, they are likely to default. The problem is that the Syriza party came into power by promising an end to the crippling austerity measures required by the IMF, but a Grexit will devastate the economy anyway. Rock and a hard place.

dow

Exchange rate

There has been a small improvement in our exchange rate against all currencies. The Rand/Pound receded back from the nasty R19 level it was testing, and is back at R18.40. The Rand/Dollar is below R12 again. This is probably as a result of a slight rise in inflation in the States. No economy wants to get into a ‘deflationary’ (negative inflation) environment, and most western economies are either there, or very close. READ HERE if you want to know more about Deflation and its consequences.

randdollar

Other Indices
Brent is inching higher every week, now at $65. Gold is drifting sideways. If you want to invest in gold, it is usually a far better bet to buy a gold ETF than mining shares. Gold mining shares are fraught with labour problems and management challenges and often move due to reasons completely unrelated to the gold price.

 
 

brent

If you’d like to see real-time graphs, a good place is :HERE