To market, to market to buy a fat pig. We sank off our best levels, I saw somebody suggest that the only reason we ended in the green is that the Rand weakened to near its worst level in four odd years. Before you get your knickers in a knot about internalising the reasons why the currency is falling off of the cliff, I came across a WSJ article today that pointed out that the Indian Rupee lost nine percent to the US Dollar in the month of May alone. I wonder what mining related labour issues they must be having there? All that snarky sarcastic comment is supposed to say is that you must be careful not to internalise the conversation about the currency.
Financials also slid, banks ended the day much lower, but industrials rallied and the weaker currency also helped platinum and gold companies too. But still, the share prices of the local precious metal producers are a ghost of their former past glory, the gold index is down 50 percent over ten and a half years. I found an excellent table: CPI headline index numbers1 (Dec 2012 = 100), if we rewind to the January 2003 level of the index, and then we apply the inflation calculator, we see even steeper losses. Worse. Much worse.
Because essentially the 3091 points on the Gold index in January 2003 is around 5126 points in December of 2012 (as per the table above), 1523 points currently is around 1475 points in December of 2012 (again referencing the table above), the difference in performance between the two is around 3650 points. Or roughly 71 percent lower on an inflation adjusted basis, I hope that my math is correct here, check it out. That is a complete wipe out in anyones language, because quite simply to get back to the levels before, you have to increase roughly 250 percent.
I suspect that the platinum producers might and could capture that former glory. For the time being however, there are many obstacles. And another obstacle could be put in place today, the use of labour brokers to obtain gainful employment might well be a thing of the past in South Africa, at least for now. Herman Mashaba in his capacity as chairman of the Free Market Foundation had this piece yesterday: Unemployed people need the services of labour brokers.
One of the three pillars of the Tripartite alliance, the trade union element, is vehemently against the use of labour brokers. Because COSATU's view is that Labour Broking gets in the way of creating permanent employment. Here is their answer: COSATU answers DA on labour brokers. Modern slavery is the term. I am not sure, it is an ideology debate that sees no middle ground, almost never actually.
But the reality for labour is that "things" might well look worse in the coming years, which is highlighted in a recent TED talk that I watched: Andrew McAfee: What will future jobs look like? Watching the piece on awful bandwidth that we are unfortunately subjected to is a little heart breaking, but lucky for us there is a transcripts piece, where McAfee explores the consequences of too many machines in our lives:
- "The first are economic, and they're really nicely summarized in an apocryphal story about a back-and-forth between Henry Ford II and Walter Reuther, who was the head of the auto workers union. They were touring one of the new modern factories, and Ford playfully turns to Reuther and says, "Hey Walter, how are you going to get these robots to pay union dues?" And Reuther shoots back, "Hey Henry, how are you going to get them to buy cars?"
Reuther's problem in that anecdote is that it is tough to offer your labor to an economy that's full of machines, and we see this very clearly in the statistics. If you look over the past couple decades at the returns to capital -- in other words, corporate profits -- we see them going up, and we see that they're now at an all-time high. If we look at the returns to labor, in other words total wages paid out in the economy, we see them at an all-time low and heading very quickly in the opposite direction.
So this is clearly bad news for Reuther. It looks like it might be great news for Ford, but it's actually not. If you want to sell huge volumes of somewhat expensive goods to people, you really want a large, stable, prosperous middle class. We have had one of those in America for just about the entire postwar period. But the middle class is clearly under huge threat right now. We all know a lot of the statistics, but just to repeat one of them, median income in America has actually gone down over the past 15 years, and we're in danger of getting trapped in some vicious cycle where inequality and polarization continue to go up over time."
Again, I don't know what to take away from this, these TED talks are supposed to be insightful and helpful, I can understand why labour would push back here. I keep saying it, we will have to become smarter in time, because the machines are going to continue to do the labour intensive "stuff". But I am very sure that labour do not see it the same way.
What was that old line I remember in the Mad magazine when two old academic types were looking at a student protest? The students were protesting and shouting, "We shall overcome" and the professor turned to his academic friend and said, "that is fine, as long as they don't come over here!" It seems to be a slow news day, because the main news seemingly right now is a bunch of policeman and a few protestors and some journalists all in a standoff in a square in Istanbul. And a fixed camera with live visuals. The prime minister seemingly has had enough, and has sent in the police to take down the banners and clear the square, Taksim Gezi Park. And the stock exchange? Well, that is getting another punch in the guts, down two and a half percent as we speak (write). The stock market is down nearly 20 percent from the highs.
Whilst many might be uncomfortable with this type of behaviour, it is simply democracy at work. What is quite interesting however is that the prime minister is going to meet the organizers of the protest today, and perhaps try and understand their concerns. Or more likely tell them how the world is, according to him, I get that sense from his abrasive style. In fact, one of the core parts of the protest are an opposition to the authoritarian style of Prime Minister Recep Tayyip Erdogan. And a ban on alcohol. And something to do with public displays of affection, seemingly those libertarians are worried about an infringement on their freedoms. What I am most interested in is the perception translating into reality, and in particular what it means for the cost of funding that Turkey obtains in the open market.
And if you look at the four year graph, it seems the Turks have done a great job, and their ten year bond used to yield around 11 percent. Before this recent protest action it was closer to six percent. So currently at seven and a quarter, you can see how quickly the market can react. And with the prime minister threatening to crush the speculators, that had different motives. As we have been speaking/writing the market is actually trending higher. Well, not sure, perhaps the Turks will sort their stuff out soon, I just like the idea that democracy is being exercised, that indicates some progress, right?
Home again, home again, jiggety-jog. We are getting slaughtered here today, markets globally are selling off as the Japanese Yen continues to strengthen against the US Dollar. In Europe there is anxiety over the German Constitutional Court and their decision about whether the ECB can use the OMT legally. Even though they, the ECB, have never used the OMT. But having the ability to use the OMT is critical, because it implies that if needs be the ECB can pull the trigger and proceed. And chase the bond vigilantes away. That would be a good outcome. For now, as the BusinessInsider points out: Markets Turning Ugly: Yen Soars, Italy Tanks, Emerging Markets Get Hammered Again. Sigh.
Sasha Naryshkine and Byron Lotter
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