Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. Records! That is where we closed last evening, the Jozi all share index printed an all time high, 34622.93 is where we closed, a gain of 184 points on the day, which is a percentage gain of 0.53 percent. There was of course the news of is-it-or-is-it-not Telkom re-nationalisation, which was sort of squashed, but it is not as if it is not up for discussion. Sort of. Yes, no. But probably impossible, especially if you are only a 40 percent shareholder, regardless of what the business is, or is not. Phew, venting here. The platinum stocks sadly were not winners yesterday, down 1.8 percent in total, perhaps the firmer Rand impacting on their progress, with Mr. Risk-on visiting Mr. Markets house again, in the same way that Mr. Messy (not the footballer, he is with an i) gets a visit from Mr. Neat and Mr. Tidy. I prefer clean and tidy to messy.
One particularly bearish local CNBC market anchor continues to be astounded that markets are going up, he is a self confessed bear, so I guess that tells half the story. But, me, as a self confessed bull, continues to not be surprised that markets head higher, even though at face value the news seems bad. We both call ourselves realists strangely, except my reality involves investing clients money on a daily basis and our firm continues to make those decisions for clients based on how we see the future. And a bearish view from people who do not manage any money at all, and that includes Niall Ferguson and Nouriel Roubini might have consequences in the real world, i.e. people might make investment decisions based on their really useful insight, because they are both geniuses, they just happen to be of bearish cloth. But, they don't actually make any investments themselves on behalf of clients of any sort. See what am I saying? It matters more to me what Bob Doll of Blackrock says, because his firm manages money in the trillions of Dollars. In fact, you can read his weekly piece here: Will Policy Response Follow Policy Rumor?
Whilst some may be left believing that the worst is yet to come, I am with the song, the best is yet to come, humans innovate and solve issues. So, whilst the Spanish and Italian debt issues might be front and centre, they can be solved and everyone is getting the sense that German Chancellor Angela Merkel might be softening her (of course the ruling party in Germany supports this) stance on extreme austerity in Europe. But the "truth" according to the statistics suggests this, first of all, unit labour costs statistics from the European Central Bank from the Statistical Data Warehouse which you can find here -> Home > Economic Concepts > Prices, output, demand and labour market > Costs > Unit labour costs.
Here is the first graph, which is all of the 17 Euro Zone countries, those are fully fledged members who use the common currency.
Unit Labour costs as per the definition from the OECD: "Unit labour costs (ULC) measure the average cost of labour per unit of output and are calculated as the ratio of total labour costs to real output." For a more detailed look at the definition check it out: OECD Unit labour costs. The base, 100 was set in 2005, as you can see costs across the zone have increased to 110 over the last seven years. But the next graph is even more fun to look at, it is the same time frames, but measures Germany against Greece.
I can see you shaking your head already. How is it possible that unit labour costs in Greece are higher than they are in Germany? The logical conclusion to come to is that Greece workers must be a whole lot more productive than their German counterparts. Although you know already that cannot be true, check this, first the whole zone, the 17 members, Euro area 17 (fixed composition) - Labour Productivity
That seems like a fairly good looking graph, that tells me that the average European zone member worker is a lot more productive than they used to be. But again, let us measure, Greece against Germany. This is Greece first.
And then finally, Germany. I guess for the purposes of this piece, all you have to know is that the Germans work harder and get paid less for the same work ethic.
So, all Europeans are not the same and you reap what you sow. As we have said many a time, Greece has defaulted many more times than you think, because of a culture of non-compliance and bad governance. And now that needs to change. But first, Angela Merkel has to deal with this line of thinking, from a very unusual source, for me anyhow: What Part of 'Austerity Isn't Working' Don't People Get?
Mad, no, let me rephrase that, crazy mad. I am talking about this news from yesterday: Countries Boost Emergency Funding for IMF to $456 Billion, taken from the horses mouth. I heard garbage spewing from a whole host of sources which suggested that we were bailing out the colonialists, the European masters. No. We are a contributing member of the IMF and we have pledged 2 billion Dollars as South Africans, out of a total of 455.9 billion Dollars pledged already by 37 member countries that represent 60 percent of the organisation quota. South Africa, as a percentage of the total pledged so far, is a mere 0.4387 percent. Which by the way, according to the IMF Members' Quotas and Voting Power, and IMF Board of Governors is too little. WHAT? So you mean we have not contributed enough, or pledged enough? Well, no, as far as I can understand it, I took our little box from the long table there:
We are short, see that? And the USA has not waded in, if you see from that release, the link above. So excuse me for being rude towards the headlines and insinuations that we are bailing anyone out, it is what you sign up for as a member of the IMF. If the IMF needs funding, you are supposed to stump up your quota. Otherwise if you ever need the IMF (which we have in the past), they are not there. This is not a donation COSATU, it is another form of membership fees, if you will. I kid you not, that is what COSATU said: COSATU condemns gift to IMF.
I remember finding a trade union form in a South African context which suggested that you pay one percent of your annual income per annum to the labour union that you are affiliated with, so that they can broker a deal on your behalf. For you to get a better salary when it comes time for collective bargaining, because obviously the interests are aligned. So, one percent does not sound like a lot, but it is more than a money market account, which by the way costs around half a percent per annum. And one percent is more than our IMF quota which we are obliged to contribute as a member, in the same way that union members are required to contribute as members. But it was not just COSATU that made me mad, all the newspapers and my twitter stream lit up, and happily the presidency corrected all and sundry, saying that it was a LOAN and not a gift. Perhaps the presidency should have said that this was also an obligation too. But I am well aware that this could equally be a masterstroke by COSATU, who of course are fighting with Public Service and Administration Minister Lindiwe Sisulu. Who quite publically has said that the union demands will cost the government 30 billion Rand more a year, and was over 8 billion more than the treasury had budgeted for of course. But COSATU would point out that we are "giving" this money away. Obligation is the right word, and judging by the numbers, we are a little short.
Byron's beats looks at the most important decision today. An no, it is not whether Hashim Amla wins the toss in Harare in the most/least important cricket match of the day and decides to bat first. It is not that, but rather that the FOMC and Ben "the measured" or Ben "the bearded" Bernanke telling us what next.
- It's a big day for markets globally as the US fed makes its interest rate decision (it's currently at 0.25% so not going anywhere) and releases the FOMC statement. Other than cutting interest rates the fed has other monetary options to stimulate a market that has shown some weakness of late. The last 2 GDP reads were weak while the momentum in the jobs numbers has also pulled back. Although the FOMC (Federal Open Market Committee) is independent do not forget that this is an election year which will certainly have an influence.
Bob McTeer who writes one of my favourite blogs has some interesting things to say about tonight's decision. He was on the FOMC for ten years so I would take his opinion pretty seriously. Here is his piece which looks at the state of the economy and all the possible actions. Lets pick it apart and see what he says and what to expect.
I'm sure you've heard the term Operation Twist. Its a policy where the fed sells short term securities and buys longer term maturities so as to flatten the yield curve (decrease long term rates). Lower long term rates are supposed to encourage banks to lend more. The Fed have been implementing this policy since last year and it is about to end. The question is whether they will announce a continuation. Bob (I read him so much I feel I have the right to call him by his first name) reckons it doesn't make much of a difference going forward because it does not actually add to bank reserves.
He makes a point which I strongly agree with. Many naysayers have criticised QE2 and Operation Twist saying that they resulted in no growth. But how do they know what would have happened had these policies not been implemented? As far as I am concerned the US is still growing which is more than I can say about Europe.
Another option is to do nothing and let the market steer itself after all this assistance. For me this is not a bad option. The growth is still filtering through and there is ample liquidity out there. I Guess it is a matter of confidence however and some sort of stimulus might not have a direct affect but will install confidence in banks to lend and companies to spend. For that reason I do hope the Fed will be proactive.
To conclude Bob comes up with the following. "I could probably be persuaded to go along with the do-nothing option. However, going into the meeting tomorrow morning, I would be inclined to support a statement along the following lines: While we are not proposing another formal program known popularly as QE3, or even a formal continuation of the maturity extension program, known popularly as operation twist, we do expect to resume normal open market operations with a view to preventing a contraction in total Federal Reserve assets and promoting modest growth in bank reserves and the money supply. To the extent that this requires purchases of securities, we will probably choose the longer-dated maturities and will opportunistically purchase guaranteed mortgage backed securities. We do not view this as a major campaign, but as a return to normal discretionary open market operations."
Again I agree. Like I mentioned above, come across as proactive without actually doing much. In Bob's conclusion he emphasises flexibility just in case things go haywire. We'll wait in anticipation for the speech tonight.
Currencies and commodities corner. Dr. Copper is last at 341 US cents per pound, the gold price is last at 1618 Dollars per fine ounce. Watch the whole commodities complex closely there, the FOMC decision is expected a little later today, see Byron's beats above here. The oil price last traded at 84.28 Dollars per barrel. The platinum price is lower at 1473 Dollars per fine ounce. The Rand is still firming up a touch, last at 8.22 to the US dollar, 12.93 to the Pound Sterling and 10.43 to the Euro. We are about flat here today, as Byron pointed out, it is all about that exceptionally smart bearded professor and now policy maker Ben Bernanke.
Sasha Naryshkine and Byron Lotter
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