Jozi, Jozi. 26o 12' 16" S, 28o 2' 44" E. Oh no, not another day like yesterday, was the punch line to a wise crack (you can't use the j word in email folks) I used to tell, but yesterday the markets felt strangely like that too. Same old issues, Spain, lack of clarity about European responses to the sovereign debt issues, the US fiscal cliff, US presidential elections, slowing Chinese economy, these are all the same old issues that we have to deal with day in and day out. And yes of course they do have a proper impact on peoples decision making, if you read the headlines and mainstream and then base your business decision on that basis, then I am guessing you are likely to err on the side of caution right now.
The Jozi all share index closed down 276 points, or 0.81 percent to close up shop at 33722. The new JSE trading systems mean that there are still a number of issues with regards to SENS (the format looks average, still working it out), and the software providers trying to work it out. There must be many frustrated high frequency trading types who are still waiting to unleash their programs, waiting for the trading platform to settle somewhat. I must put my feelers out and ask the trader types what their experience has been so far, because for the time being it seems pretty quiet. Resource stocks sank a percent and a quarter, I think that tomorrow morning early, if you suffer from insomnia, make sure that you tune into business TV to get the Chinese numbers fresh. I am not a short termer, but I think that this is important, these numbers can either put paid to the anxiety levels, or hasten the idea that policy response should be swifter, more on that later actually.
Spain are starting to enter the zone in which all of the austerity measures are becoming increasingly unpopular at a general public level, and we are seeing the violence escalate a little. In a sense this may be comparable to Greece, but the size and scale of the Spanish economy relative to the overall zone makes it a much more important cog. As the Spanish prime minister said, Spain is not Uganda. Whatever that means, and however you want to interpret that, you will find that is a personal thing. I dislike using the word "thing", it should only be reserved for the hand from the Addams family. Is that right? Yes, Addams is with two d's.
So what do all of the cut backs mean for the people on the ground in Spain? Not only are there cut backs, but there are also tax increases too, perhaps the most visible being a hiking of the VAT rate from 18 to 21 percent. Coal subsidies are set to be cut, meaning that coal miners very livelihoods are at stake here, the FT pointed out, the state funding will be reduced by 20 percent, which would have a direct impact on the profitability of the mines. Mineworkers had journeyed nearly 500 km to Madrid from their workplaces and there were heated arguments with the police. Rubber bullets and the like. This is hard, but this happens when you spend too much and don't collect enough.
This ALSO happens when you promise too much. The market will lend you money, but at a worse rate than the one you were used to. Plus of course the labour laws in Spain are the most restrictive in the zone, which makes it hard to be a flexible business. All I am saying is that you get what you create. If you overpromise, of course people will vote for you, but when the money dries up, you had better watch out, because then the very people you tried to appease and attract over the years quickly turn into your enemy. But different countries have different economic models that either work or not. The market in a way is rewarding this round of austerity with lower borrowing costs, the ten year yield is close to six and a half percent. The last time the Spanish voters got together nationally, the centre right folks took the baton over from the centre left. But as recently as March in a regional election, things were not as good. Voters and citizens are impatient, because a job lost today means lost revenue tomorrow. Down here we could learn a lot from what we have seen in Europe, but my sense is that the same mistakes are repeated time and again.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. I am not too sure whether the Fed minutes from the prior meeting should be the most important thing to focus on, but I guess the fact that members of the FOMC are open to stimulus (if the economy starts looking worse) means that perhaps the recovery continues to look weaker. Strangely the US Treasury can continue to get debt away at record low yields, this is a golden era for government issuances. Markets bounced around again, but ended in the red, the broader market S&P 500 nearly managed to eke out a gain. But not quite, the S&P 500 lost a mere 0.02 points to close at 1341.45 points. The nerds of NASDAQ lost half a percent, whilst the Dow fell by 48 and a half points to end the day at 12604. It was close to 13 thousand just a while back.
Yesterday Paul Krugman appeared on CNBC Squawkbox, and it almost seemed as if Joe Kernen had something personal about this particular interview. Krugman, who is outspoken, and everyone knows that he is a liberal. In fact his very New York Times platform is called The Conscience of a Liberal, if you had any illusions as to what his political persuasions are/were, then just follow the blog for a while. Now on that specific CNBC show there is the very colourful and outspoken Joe Kernen, who makes the Republican case well known with every single opportunity that he is given. Everything big government is bad in Joe's opinion. As you can see from this posting by Krugman Zombies on CNBC, he objected to the badgering from Kernen. I am pretty sure that this will be the very last interview that he has on that platform. The expectation from Krugman was that he was going to talk about his book.
If you want to, you can watch the full interview via the "interwebs" (which my eldest daughter was confused with, just the other evening, I had to tell her, they are the same thing) then you can follow the following link, but I warn you that you need good bandwidth: Krugman on How to End This Depression.
Possibly the biggest issue to deal with to tackle the US deficit is the one that is the biggest hot potato. Healthcare. As we said yesterday, everyone wants access to better healthcare and is willing to pay for the expensive therapies. But the cost of healthcare in the US is way too high. You might have heard people say, the average American family is only one medical disaster away from bankruptcy. This is what Krugman had to say about costs associated with healthcare: "If we could suddenly have French health care costs instead of American health care costs, our budget problems would be solved forever. So it is about the very high costs of the U.S. health care system and can you not resolve our budget problem without resolving that. And if you do resolve that, then this whole thing becomes a whole lot easier."
And now you can see, from the US pie chart what he actually means by this:
The source of this fine pie graph is taken from the following place usgovernmentspending. If you fast forward to the 2017 expected budget, healthcare then becomes the most expensive item on the list. Then Krugman is right, how come Canada, Norway, France and Germany manage to cope with a smaller allocation of their budget to healthcare? Is it just a numbers thing? The US has a massive population when compared to these other countries. And perhaps the space and administration of a public healthcare sector is not for everyone. And what about the levels of obesity? The world health organisation (WHO) term this "globesity", as it is not just an American problem, but a global problem. But the US and Mexico top the list, check it out: Obesity (most recent) by country. Europe seems to be much lower than the average, which is a function of their lifestyles in general. That is the hottest of all potatoes, tackling obesity, although Mayor Bloomberg in New York seems to want to make a serious go of it.
This article Mayor Bloomberg and the Real Path To Obesity goes to the core of the issue. Choices. I do not necessarily agree with the conclusion, but the fact that the medical insurance companies are/might be involved soon, seems to suggest to me that lifestyle choices should be monetary. Find an insurance program that rewards you for healthy choices, that sounds strangely like Discovery's vitality program. And if you needed reminding, they have a business in the US, Destiny.
Currencies and commodities corner. Dr. Copper is lower, last at 339 US cents per pound, the gold price is also lower, last at 1562 Dollars per fine ounce. The platinum price is also lower, last at 1406 Dollars per fine ounce. The oil price is 84.85 Dollars per barrel, lower on the day, the whole commodities complex is lower with all the anxiety around. The Rand is weaker (of course), last at 8.34 to the US Dollar, 12.89 to the Pound Sterling and 10.17 to the Euro. We are lower here today, but there is a small buffer that has been built in by way of the weaker Rand. Tomorrow is the big one. It really is, almost as important as the US jobs number last week.
Sasha Naryshkine and Byron Lotter
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