"Before one panics and goes for the nuclear option, sell everything and hit the streets, one should think a little harder. Is this another moment in history where we reached an inflexion point. The one of many? We have been there before. I am sure that there will be many others. It has happened at a particularly bad time, bad from the points of view that everyone was catching their breath to think about something else, the December vacation. Bad from the point of view that we were just downgraded, from a credit point of view."
To market to market to buy a fat pig. There was a sense of disbelief yesterday, a sense that whilst common sense had prevailed all along, this was a clear sign that either cracks are emerging, or something else is happening. There was an FT story, that does a good job of trying to tell it like it is: Finance minister sacking undermines South Africa's reputation.
Of course the FT would bat for capital, that is their target market. Kevin Lings, chief economist at Stanlib (and fellow Melrose Arch tenant, seen in Clicks and other such exotic locations) is quoted as saying he thought this was political interference in Treasury. In other words, if you cannot give me what I want, I will take what I want, thanks very much. He also says that the lines are blurred between what is good economic policies that are sound for the country and what appointments meet political objectives.
What those political objectives are however, is not too clear to see. Basically, as the article concludes, the replacement has no experience, that in itself tells you that political objectives are front and centre. As David Shapiro pointed out earlier in the day during an interview on CNBC, the Finance Minister of a country is like a CFO of a business. The CEO's right hand person, the person who knows what is going on as far as the money is concerned. The fact that the CEO gave no reason for the sudden departure and appointment is even more worrying. And it sends a clear signal of how the CEO acts.
Expectations are for hikes in the marginal tax rate, perhaps even in the companies tax rate. At a time when the country is operating on fumes, I am not too sure that is smart. Austerity is one thing, the magic wand of higher revenue by raising taxes and everything continuing as normal, that belongs in fairy tales. To collect more revenue, you need to encourage growth. To encourage more growth, you need greater economic activity. To encourage greater economic activity, you need a sound and clear economic policy, one that is not confused by events such as this. If the two events in Nomura's analysis of it (we pointed to it yesterday), SAA disagreements and the Nuclear deal financing are at the core of it, then those are state owned entities, with their own sets of problems.
Again, let us not get our knickers in a knot, there are "things" that you can do in order to change this. Whether or not the rank and file of the ruling party will stand on this Arnhem or not (history buffs will get the reference, a bridge too far), remains to be seen. The normally inline with the ruling party Shaka Sisulu went on a Twitter tirade, the last two tweets were as follows: "Comrades of the movement are going to have to wipe the facade of their faces and reassert the centrality of the movement in decision making" and then lastly (and no more tweets for a while now) "Or go buy a good suit. And start writing a nice eulogy. To go bury a once proud history. In their lifetime". He has strong political allegiance to the ruling party, his grandfather is Walter Sisulu.
The upshot of it all, from a markets perspective was at face value very little, the market was even up at one stage, slipping by over a percent at the end. Scratch a little under the surface and it revealed a WHOLE lot. A weaker currency leads to imported inflation, which leads to the real scenario of interest rates increasing. Which is a double whammy for consumers, the cost of their imported goods go up and the cost of their financing increases. Coupled with pending rate hikes, a loss of investor confidence, the obvious quarters of the local equities market took a beating. Financials and banks were heaviest hit, financials as a collective were down nearly 9 percent.
At the top of the losers were the likes of FirstRand (-14.84 %), Barclays Africa (-14.53 %), Discovery (-14.27 %), Standard Bank (-13.54 %), RMB Holdings (-12.47 %) and PSG (-12.43 %). At the other end of the spectrum was all the stocks that had a bias to the Rand, either from a production point of view (i.e. their product that they produced, priced in Dollars) or from where the company had a primary listing elsewhere, Richemont, Glencore, Capital and Counties, SABMiller, Intu, British American Tobacco, Naspers (Tencent is listed in Hong Kong), Reinet, Mondi and Mediclinic (soon to get a London listing).
Before one panics and goes for the nuclear option, sell everything and hit the streets, one should think a little harder. Is this another moment in history where we reached an inflexion point? The one of many? We have been there before. I am sure that there will be many others. It has happened at a particularly bad time, bad from the points of view that everyone was catching their breath to think about something else, the December vacation. Bad from the point of view that we were just downgraded, from a credit point of view. Inflationary pressures are borne by the poor, it eats the spending power of the poor the most. Rich and skilled people have options. Which is not good when greener pastures are available elsewhere. We will continue to monitor and advise accordingly.
Linkfest, lap it up
Uber is one of the apps making some of the biggest waves and it is about to make more in the delivery space - Uber's first spinoff app is a food delivery service in Toronto. They are finding more ways to better utilise resources.
One of the stocks that has been on our Radar this year is Priceline. The stock is up 20 000% since the stock's low in 2002! - Priceline is the one big internet comeback attempt that actually worked.
Josh Brown points out that hedge funds were complaining about too little volatility and then that due to too much volatility they were forced out of positions. The market is never going to do what you want it to do, remember that these are some of the smartest people on earth and the market makes them look dumb - I think I'm dumb.
Simpler normally is better, and in this case a $10 tube is working as well as multi million dollar machinery - A radically simple idea may open the door to a new world of antibiotics. Given that antibiotic resistant bacteria is on the rise, these new types of antibiotics will be key going forward. Part of the article looks at the life the Russian scientist who is doing the work and what obstacles he had to overcome after the Soviet Union fell.
Home again, home again, jiggety-jog. Japanese stocks are up a lot, a percent or so, following a good lead on Wall Street overnight. After the carnage here yesterday it is difficult to see clearly, one must definitely keep a cool head in amongst the boiling and fuming many. If that were not enough, on my way home yesterday I encountered multiple car accidents, all serious. In good news, Marisa Mayer, the Yahoo CEO had identical twin girls, well done to her. That hardly helps us down here in Mzansi, a place where the currency has certainly deteriorated to the point where it is a matter of time before inflation starts to filter down. And there are some rumours of an emergency SARB meeting, to hike interest rates to stave off pending inflation. What about growth and demand? Sigh, stand by for more.
Sent to you by Sasha and Michael on behalf of team Vestact.
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