Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. The inflation bells must have been ringing at 370 Helen Joseph street in the city that has multiple names, let us just settle on the city of lovely Jacarandas at this time of the year. That address is the HQ for the South African Reserve Bank. And the reason why I say that is that the last one month has seen the Rand weaken by 8.55 percent to the US Dollar. Most of that has come actually in the last 8 trading sessions, getting thrashed by one percent a day. Max Gebhardt said on twitter this morning that foreign sales of South African bonds topped 3.5 billion Rands yesterday. I heard via some currency guy on twitter yesterday who suggested that the SARB was actually in the market at 9 to the US Dollar.
On the tenth of September the Rand was 8.16 to the US Dollar. On the same day, the oil price, Brent Crude oil was 113.84 Dollars per barrel. So, we would have paid 928.94 Rands a barrel on that day. Today, right now the currency is last at 8.88 to the US Dollar, having tested nearly 9 to the US Dollar yesterday. A barrel of Brent, which is still priced in Dollars, is last at 112.60 USD per barrel. That is 999.88 Rands per barrel. Without having any control over what goes into your motor vehicle, it is suddenly around 8 percent more expensive. Expect to pay more for fuel in the coming months, and unfortunately that eats directly into consumers disposable income. Phew, and some of the retailers and banks got hurt as a result. Now I do not use that much fuel, but the goods in the stores, they use a lot of fuel. Of course when they are all running and the drivers are delivering the goods, currently the unionised members in the truck driving industry are on strike. The truck drivers themselves are well aware of their part in keeping the wheels of the economy well oiled. There are issues with regards to fuel efficiency, like keep your windows closed, pump your tyres, don't rev too much and stick to the speed limit that will help, but not to that extent. I am guessing that it is just a matter of time before we see more motor bicycles on the road. This is not good for either the inflation outlook, as imported inflation rises, exports are expected to be weak in this quarter as a result of strike action and domestic consumption could be muted as a result of higher fuel and food prices. But as quickly as it turned ugly, it could head back in the other direction. Since the beginning of 2010 however the Rand is weaker to the US Dollar by over 18 percent.
Yesterday was also quitting day for a few CEO's, the one that surprised me the most was without a doubt was Stuart Murray announcing his resignation from Aquarius Platinum.
I for one was disappointed by this announcement, Stuart is an icon of South African platinum mining. I remember that brilliant piece once where he was called the King Rat of the bushveld. Now, I read that James Clavell book, King Rat as a boy and loved it, it was a favourite of mine. In fact, Clavell's daughter acted in a Bond movie, a small part, but we are getting off the topic. Like the King in the book, King Rat, the story seemingly ends badly for Stuart Murray.
David McKay wrote a nice piece yesterday in MiningMx: Stuart 'King Rat' Murray quits Aquarius Pt. Of course we are all speculating about the future of Murray, but this completes the top four platinum producers top management gone. The Ian Farmer of Lonmin health news is not good, Dave Brown recently left Impala Platinum. Ralph Havenstein left Amplats on a fairly sour note in 2007, with two interim CEO's doing the job until Neville Nicolau took the job. As recently as July this year, Nicolau left to pursue other interests, replaced by former inside and tough man Chris Griffith. And now Stuart Murray. It has been tough out there for the platinum producers. And perhaps will not get any easier.
SAA saw another high profile departure yesterday, the CEO stepped down in an emailed resignation
. I was looking for this number all day long yesterday, and someone by the twitter handle Tawanda!!! came up with this beauty: "SAA has accumulated losses of R17billion since deregulation in 1992. Since then, 9 of the 11 private airlines competing with SAA has failed" More recently I can think of Velvet Sky. I remember Nationwide airlines. Intensive air. Sun air. Santaco, does that count, as of yet it has not taken off? I finally after much searching found a list on Wiki for the continent: List of defunct airlines of Africa. Most recently our neighbour to the North, Air Zimbabwe has suspended all flights. They have no national airline. Nothing. As of the second of July this year. It took that long, over a decade of incurring losses and the country falling into economic disarray for the airline to go bust.
I then had the most fascinating chat to a pilot who works at the carrier and decided to share my news with the twitter thingie. Of course all of these facts were not verified by me, I was regurgitating what the pilot was saying and I promise to check them out in due course. If I can get the available documents. Or, if there are any of you pilots out there with the facts and figures, send them in my direction, I would be happy to publish the facts. But here is what I tweeted, in order:
- Just had a 25 min call with SAA pilot. Fascinating. No management representation. (that is the pilots, the fellows operational on the ground do not have any board representation)
SAA has same fleet size as Air Canada. SAA has nearly 4 times as many managers as Air Canada. Bloated cost structure.
SAA is going to have to return 2 planes by year end as leases not renewed. Again. This is my intel from pilot.
SAA pilot said that South African parliamentarians get 57 freebies a year. Have we not heard of audio visual conferencing facilities?
Lastly, pilot suggested that outgoing SAA CEO Siza Mzimela was being paid 950k ZAR per month. Whoa!
All this SAA "news" via pilot. Says board tells pilot they have no loyalty, but avg pilot has 17 plus years versus board avg of over 2 yrs.
And comparisons, SAA has more bums in seats than Air Canada, around 12 percent more. Air Canada is "profitable".
Air Canada is better situated, geographically than SAA, I said to pilot. And Canada has oil reserves, if that makes a difference, I said.
In SAA pilots mind the 1Time ex management would do better job than "extended" SAA board, who have not got the necessary "skills".
. But I presuming that the pilot meant just the international segment, or the business ex the bigger domestic business. I will have to check that factoid! Like I warned all along, I DO NOT have all the facts here, and will have to check.
Digest these links
.
"The market will not have the patience" is what some dude said on the box this morning, when asked about whether or not the Spanish are formally going to ask for aid. What he means is that the fellows in charge of Spanish finances might be thinking that they are on the right track, telling the market that they do not need assistance and the recapitalisation of their banks is enough, but that comment in public elicited a whole lot of sniggers. If bond yields rise to unsustainable levels, then there will be more anxiety. But now you have the German Finance Minister saying the same thing, all the financial metrics are pointing in the right direction for Spain
, the bank recapitalisation is all they need for the moment. Who is sniggering now? Follow the Reuters story, that includes Greece too, more on that later: Greece confounds euro zone, Spain not seen seeking bailout. See that, the 500 billion Euro ESM is in place. The Europeans took their time, but it happened.
Am I the only person who does not care what the IMF says on global growth?
I suspect that there are many people who get their knickers in a knot when the IMF tells us something we know already. We know that growth is slowing, thanks for that. But in an interview with Bloomberg, rock star economist Jim O'Neill was quoted yesterday as saying: "As you go through these adjustments, it's quite painful, but coming out the other side with a different structure, we should have a much stronger world economy." Exactly. Human nature trumps economic outlooks. If you were not paying attention, during an economic downturn companies use this as a cost cutting exercise to trim all the fat built up in the very good years. I am with Jim. Not the IMF. Check out the rather long Bloomberg story with video: Shift in Global Growth Engines Signals Gain After Pain.
Angela Merkel visits Greece today, for the first time since the crisis started
. Perhaps she will get the human element involved in all the austerity that has been imposed on the Greek people. Folks on the ground (who have separated emotion from the visit) are suggested that she is showing leadership in the crisis, as important for her as solidarity across the rest of the zone. Greece is in the process of imposing the seventh austerity methods in order to get the next tranche of funding from their Euro brothers and sisters. So whilst Merkel and Germans in general might be unwelcome in Greece with a lot of animosity towards their northern European "neighbours", the fact that she is going tells me that commitment is there. If you doubted it, of course. Our base case has always been that nobody exits the Euro Zone. So all those twittering masses, as you were. Still, security will be high, very high for six hours. The German view of course is different: Merkel 'Must Stay Tough in Athens'. Many angles, different stories, same currency. Another one that I liked: Mrs Merkel goes to Athens. Why? This is possibly the most talked about six hours (the length of the visit) ever.
My favourite season starts today. Not the IPL Champions League playoffs which start just up the road at the Wanderers today, weather permitting, but rather US Q3 earnings season. Alcoa and Wells Fargo kick off earnings season tonight. I suspect that Alcoa will never be investment grade. I am not the only one though, every time that the company reports I am reminded by a chapter in the Benjamin Graham book The Intelligent Investor, which writes off Alcoa as investment grade because the earnings are too volatile. Well, that is the conclusion however. But Wells Fargo, there is a decent enough investment. We will see when the dust has settled whether or not consensus was right or not. I always think that folks are either too cautious or too optimistic. I did bump into this article: Asian Exports Turning?.
I saw this: Employment: A decline in the participation rate was expected due to the aging population. The last paragraph is telling: "Bottom line: If someone says the "actual" unemployment rate is much higher than reported because of the decline in the participation rate, they are unaware of a key demographic shift."
Paying attention, at all times.
Another mystery that I have never been able to explain is this idea that China somehow is funding America's wars. This is true to some extent, but is overstated too much by politicians. Let me explain with a series of tables, first: MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES. See that, China have been selling their treasury holdings over the last year, whilst the Japanese have been adding like crazy. BUT...... check this table out: Gross External Debt Position*: June 30, 2012. Total debt outstanding: 15.415265 trillion Dollars. So based on those numbers, internally, non major foreign shareholders own over 65 percent of US debt outstanding. And China only owns just 7.4 percent of US debt. Facts and manipulations.
Currencies and commodities corner. Dr. Copper is last at 370 US cents per pound. The gold price is lower at 1771 Dollars per fine ounce, the platinum price is about flat for the session at 1691 Dollars per fine ounce. The oil price is marginally better at 89.57 Dollars per barrel. The Rand is catching a serious bid after getting trounced. Down at 8.75 to the US Dollar. The market is lower at the start, but Tim Geithner and Ben Bernanke are in India. And Angela Merkel is in Greece. And we are sitting here at our desks.
Sasha Naryshkine
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