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 Comment                                                                                                                  12 December 2013

 Equities accepting tapering?   12/12

 By Cees Bruggemans                                                                                                                 words 860     

In an accompanying Comment article (“Reversing the Order of Business” 10 December 2013), I stuck with the script that has dominated 2013, namely that the onset of Fed tapering of bond purchases sets in motion disorderly selloffs in global bonds, but also of exposed EM country markets.

Comment                                                                      10 December 2013

Reversing the order of business 10/12

By Cees Bruggemans                                                        words 1350


The world has been in need of monetary support and the leading central banks have duly obliged in taking their interest rates to or near zero, and providing more support through unconventional bond buying, long term supply of cheap credit to banks and unprecedented forward guidance on future rates (very low for really very long).

For the past four years and a bit, ever since South Africa successfully exited its most recent recession in mid-2009, the SARB has put strong emphasis on the downside risks to our prospects.

The world has become a village. So what happens elsewhere supposedly matters. Whether you want to know it or not, what happens far away is nonetheless brought to your doorstep.

But what a difference in emphasis.

The nightly local news may be a matter of corruption, crime, political shenanigans, poor public services, and a bit of bad economic news.

It is a very modern South African mix, and supposedly keeps us up late and talking, though my suspicion is that a majority sneak off to watch some sport or soapie, with really only the truly dedicated sticking with current affairs and its special brand of slapstick as we have come to know it.

When it comes to the world at large, we get echoes of our own pain, but on a much bigger canvas, with anger in places so big and hardship so overwhelming one kind of forgets about our own pain.

In 2010 President Zuma appointed a National Planning Commission which after due consultation produced a National Development Plan which after some argument and not a little water in the wine became adopted as government policy late last year (Mangaung) but which then in 2013 ran into various roadblocks during which many decided to disregard the bits they did not like while overall indicating their often heavily qualified agreement.

This was a useful exercise in many respects. 

The Commission did some very thorough diagnostics, diagnosing what ails the country. Good sensible minds then applied themselves to propose what should be done about it. After that the government apparently accepted the offered platform as a blueprint for action.

The dread of something major going wrong is of all times. Besides some horrific illness or accident rearranging our lives, it may be loss of employment or financial failure.

And potentially without any negligence on our part, except being in the wrong place at the wrong time.

For long stretches of modern life, a kind of artificial calm can drug, daze, even stupefy us.

If nothing goes spectacularly wrong in the work or the financial sphere for a long stretch of time, even when allowing for ordinary cyclical behaviour in matters economic and financial, we tend to forget that the ultimate underpinnings are not guaranteed.

As Taleb Nassim never tires of explaining, to understand real risk you need more history, indeed all history, as well as understand which future-oriented innovations are flawed. A heavy challenge on both scores, implying we may be flying completely blind most of the time.

So do we really understand the situation? Does our government do, and the foreigners who come knocking on our doors?

By and large we and they do, though we need a bit of shorthand to appreciate the nuances.

Nothing is as fascinating on this score as reading an IMF Consultation IV report.

The IMF language is officious, and the country authority suitable contrite, but with a streak of independence.

What you read is what is wrong and right with the country (but mostly wrong, this being the IMF) and what should ideally be done about it, with the country authority (nearly) acknowledging everything (for this is truth before a global audience), though tweaking the agreeableness where wriggle room is required (or where the visitors REALLY do not understand the local realities). 

The next decade looms (it always does). But whose decade exactly will 2014-2024 really be? Whose decade should we be looking at to understand what is coming?

If a week is a long time in politics, a decade is an immensity in political economy.

On a population of roughly 50 million South Africans (plus two million displaced Zimbabweans of whom a large number eager to go home, if only, and a few hundred thousand Chinese apparently intend on staying for the long haul), our 21 million strong labour force breaks down in roughly two components.

There is 9.7 million formal labour deployed in the high-productivity modern sector of the economy.

The World Economic Forum has brought out its Global Risks 2013 report. Its analysis provides long-term food for thought, also for South Africans.

For the past eight years, over 1000 global experts have been surveyed annually, asking them to nominate the most serious global risks for the next 10 years.

From these responses, the top 50 global risks were used to sketch the Global Risks Landscape in terms of economic, environmental, geopolitical, societal and technological dimensions.

The most LIKELY global risks over the coming decade included two economic ones (severe income disparity, chronic fiscal imbalances), two environmental ones (rising greenhouse gas emissions, water supply crises) and one societal (mismanagement of population ageing).

When it came to potential IMPACT, the biggest global risks over the coming decade included two economic ones (major systemic financial failure, chronic fiscal imbalances), two environmental ones (water supply crises, failure of climate change adaptation) and one geopolitical (diffusion of weapons of mass destruction).

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