Rex Column 24 May 2016
The next Rand play
It happened a lot quicker than expected. After a benign spell lasting all of four months during which the Fed seemingly capitulated to market wishes (lowering its expected rate trajectory), China data behaving itself and its policymakers supportive, and SA recovering from 9/12 Nene-gate with an apparent check-mated President Zuma, all these weather vanes turned simultaneously.
So far it has been like entering, and now exiting, the eye of a particularly nasty hurricane.
Rex Column 13 May 2016
A low growth bar?
by Cees Bruggemans words 1050
Has Moody's set us a low growth bar, easily achievable? Or is it a lot more complex, and not at all guaranteed that we can meet its expectations?
Despite our many internal struggles, we are clearly not Brazil, with negative GDP growth of nearly 4% last year, expected to be repeated this year, inviting clear rating downgrades. SA appears to be different, but how much, and will it last?
Rex Column 9 May 2016
The Rand Safety Net
by Cees Bruggemans words 1500
In a Rand crisis, of which we have had a few, the key ingredients nowadays are concerns about the Fed (resume tightening, taking the Dollar with her up north), about China (after all further weakening, taking global commodity prices with her down south), about world growth (still weakening, having everyone in a sweat), about central banks generally (exhausted tool box?) and SA rating junk domestically (feeding a funeral atmosphere). These are very powerful concerns when in play, and can deepen the Rand discount to fair value (undershoot) considerably.
Conversely, when a global sense of crisis gives way to less anxiety, as happens occasionally, the key ingredients here are pretty much the same as in a Rand crisis, only with the weather vane pointing in opposite direction. Thus the Fed (seen capitulating some more to market overtures, taking the Dollar south with her, perhaps?), China (growth possibly sustainable after all through policy action, supporting commodity price bouncing), world growth (not really in a spin) and our market rating (standing back from junk, even if not entirely) are again the main drivers.
Rex Column 3 May 2016
Losing heart (yet again)?
by Cees Bruggemans words 900
This country is a bit of a heartbreak hotel. So many dreams shattered so often, one is surprised there is still anything standing.
The Khoisan in the 17th, the Xhosa in the 18th, and the Zulu in the 19th century had to discover that these incoming settlers weren't all good news. Just as some Afrikaners in the 1830s and 1890s had to discover that British colonialism and imperialism had its downside. As did all indigenous black people in the 1910s when Union and the Land Act weren't apparently quite meant for them.
Rex Column 25 April 2016
A poor decade makes way
Rubble removal is a particularly dirty activity. But once things have been cleared away and cleaned up, one can start afresh. What applies to building sites, applies to greater economies, too. Indeed the world.
This past decade has been one long exercise in rubbish & rubble removal, as much the corrupt state practices of the Zuma era, and its wider public sector fallout, as the global ones in a slightly different context.
Rex Column 18 April 2016
Rand Comeback Trail
by Cees Bruggemans words 570
Just as we wrote off the Rand in a flash following the 9/12 Nene-firing and the stressful weeks that followed globally as markets heavily sold off on growth fears into January, making early 2016 one of the worst starts of any year, so the Rand’s clawback resurrection since early February has been just as impressive, to the point of last week going pre-Nene 9/12.
The discount since 9/12 has thus been completely erased, mostly because the same causal factors changed direction, allowing the Rand & SA long bond yields to fully (or nearly) retrace. Globally, the US economy mildly disappointed, while the Fed choose to pay more attention to Chinese events and Dollar impact, inviting the Dollar to ease and commodity prices & EM currencies to lift. Domestically, our politics send signals that appeared to woe markets with promises of change to come, eventually, inviting (some) oversold positions to be squared back.
Rex Column 11 April 2016
SA Risk Scenarios 2016-2018
SA faces many potential risks through 2018 that could give rise to outlier scenario outcomes, nearly all unfavourable, regarding Rand, inflation, growth and interest rates, though some positive outcomes remain possible.
The main risks are focused on Fed policy normalisation and Dollar strength resuming, another Chinese shock causing further commodity price sliding (as opposed to China stabilizing and commodity prices drifting sideways with a mild upside bias as per futures prices), a rating downgrade to junk, a third year of (worsening) drought (as opposed to a return to more normal rainfall patterns as El Niño effects weaken), and not least more strain out of our domestic political arena (further eroding business confidence, increasing defensiveness, inviting yet more withdrawal).
Rex Column 4 April 2016
SARB as flexible targeter
by Cees Bruggemans words 920
In most of the rich world, central banks can be observed chasing interest rates into negative territory, with a third of bonds outstanding now generating negative yields. It is causing enormous problems for insurance companies and pension funds, savers and old pensioners generally.
In SA we don't quite have the same problem. There we have SARB chasing after inflation spikes, in an economy skimming the zero line, with 10% of sectors in recession, 20% drifting in and out of coma, and the remainder fast losing whatever strength they still have. Higher interest rates and tax burdens in such circumstances aren't obvious slam dunks. Right? Wrong.
Rex Column 30 March 2016
Resurrecting SA growth
What are the preconditions for resurrecting SA growth, which ones are for turning, and what timelines can we confidently expect?
One can see at least six dimensions: global recovery (growth, export & commodity prices), Mother Nature (feast or famine), local macro policy stimulus (fiscal & interest rates), local macro shaped globally (Rand), local reform of the public sector into a supportive growth prop (political leadership), and policy paradigm recasting boosting business confidence and risk-taking.
Rex Column 22 March 2016
Crippling the SA economy
by Cees Bruggemans words 1000
Given the reported extent to which private interests have captured the SA state for their own benefit this past half decade, there is a major political challenge taking shape.
It concerns the recapture of the state, even if the courts may have to be the final arbiter between implacable interests. In the meanwhile, we are adrift & sinking ever deeper. What implications might this have for the SA economy?