To market, to market to buy a fat pig. On the home front we saw resource stocks try their best, up a percent as a collective, but not enough to get the broader market higher. Stocks closed marginally lower on the Highveld, financials and industrials the laggards. The Rand continued to be under pressure, weakening to a four year low to the US dollar and I get the sense that there is a lot of hand wringing going on right now. I will try and put your minds at rest a little later. The main reason given was weakening fundamentals, an excellent article in the FT explains it beautifully: South Africa: rand slumps on deficit. Phew, there are some rather bleak looking comments in there. Words like "precariously funded" and "FDI outflows" as well as portfolio funding falling by more than half from the third quarter.
Phew. Where to from here? The current quarter might be slightly better than the last, but stories circulating about strikes at one Anglo American coal mine and five Exxaro coal mines are not "helpful" from a fund flows point of view. I suspect that government will only become a whole lot more serious about the issues impacting our economy when it starts to impact on collections. Already it was a sizeable number in the budget, but you only get serious when you have bills to pay. Here it is sports lovers, the USD versus the South African Rand (ZAR), Indian Rupee (INR) and Brazilian Real (BRL):
So what does this actually show? Firstly the green is Dollar strength and that is in large part explained through improving US fundamentals relative to the rest of the globe. That is something that we know, and recently the fundamentals have improved a lot, so much so that the last third of the five year graph really brings it back home. The US economy has improved dramatically, relative to the other three economies. The Indian economy is the one that Jim O'Neill recently in an interview at that lake Como powwow is most concerned about. So, in part the weakening local currency is as a result of weakening fundamentals here, but at the same time, a much better and improving situation across the seas in the US. The biggest issue for us here is that having attracted strong inflows, the perception towards us as an investment destination has changed. And that means that less inflows will come in.
Eish. I am not too sure what to make of it. But here it is, mess around the time frames to see that it is not just us: USD -> ZAR, INR, BRL. What does become apparent over a ten year period is that we have done more poorly than the Real or the Rupee and are the ugliest of the R sisters. Or brothers.
Mike Schussler boot the boot in once again last evening, with a published article on Moneyweb titled: State collects 44% of GDP in revenue. Some pretty eye popping numbers there, the state has been a massive employer, and not only that, they pay exceptionally well. The state has employed 400,000 people from 2006 to September last year in the same time when private sector employment has essentially been flat. Wow. And the state represents 22 percent of all of those folks formally employed, but account for 29 percent of the wages. If ever there was a time that the state realised that they could collect more taxes because times ahead are tough, it is now. Loosen up on business, let business create the necessary revenue that the government desperately needs. Sadly, as with most things in life, humans are reactive, and only when treasury starts to tell the ugly truth is when we "change" the current course. We just need growth. But in order to get growth, you need cooperation from government.
I think I can, I think I can. What a relief for those watching the trends and seeing the Dow Jones eke out the smallest of gains to make the current winning streak to 8 in a row. And of course, yet another closing high. I say of course, because the beginning of the streak, the closing all time highs continue to be superseded on a daily basis. The S&P 500 could not push further forward and sank one quarter of a percent. Is this recent run up in equities about to plateau? Gosh, who knows, there are any number of events that could scupper the recent good mood and push anxiety towards the front again. Italian elections are no way from being resolved and Italian borrowing costs have been heading higher in the last two weeks. That is, how should we say, not good. So that is the one issue.
The other major one of course is the US budget, the Republicans put forward their best ideas yesterday in the Paul Ryan camp, some describing it as "leftovers warmed up" and suggesting that he is in "wonderland". Check this article out in Bloomberg, that uses the phrase WTF, whatever next! The Right-Wing Case Against Paul Ryan's Budget. I guess if you can write that, you can write almost anything. WTF. And what is the point of both sides putting their best foot forward if nothing is going to eventually come of it? I suspect that I could never ever become a politician, no skills in that department. But the anxiety of the budget and the cuts seemingly is not there as much. Maybe we will only see it later.
Crow's nest. People are waiting for the smoke to rise above that simple little chimney in the Vatican, white or black smoke, these are weighty decisions. So that is something completely non financial I guess, that is making headline news. Oh yes, and the queens delicate tummy in the UK, how is she doing, that seems to have captured some attention. Boeing seem to have fixed their problems, that should be good for the Dow Jones Industrials as the 8th placed stock in that price weighted index. IBM are the most important in that index, they are a whisker away from their all time high. No coincidence. And what will put your mind at ease in terms of valuations is Dow Dividends Near All-Time High. What you can also tell from the story above is that cash on hand by these companies is also at an all time high, 487.9 billion Dollars. So cash is at an all time high, probably strip out the financial component of the previous dividend high, and you will find we are comfortably above that 2008 number. Keep calm and carry on.
Paul sent through a wonderful quote the other day, we are not into motivational material around here, if you want that, go and watch the original Susan Boyle audition. This is via this article, Why correlations tend to 1.0: "Your long term results are less the return of how well you pick assets than how well you stay the course during bad periods." Stay the course. Don't get spooked. Be rational. Oh yes, keep calm and carry on.
Sasha Naryshkine and Byron Lotter
Follow Sasha and Byron on Twitter
011 022 5440
No comments:
Post a Comment