As you may recall, the first Twenty 20 international between the Proteas and the Black Caps was a dreary affair. This is doubtless due to the feelings of horror and despair that swept the local crowd when they unfurled their free 100% polyester South African flags. Almost as large as the colourful and proud pennant itself, was a label that offered stern instructions about how to launder the product and also the assurance that the manufacturer of the attached flag was “Officially Licensed”. The sting came in the three words that proclaimed: “Made in China”. Which dumb government department is using my money to employ people who issue licences to the Chinese to make my national flag? Desperate stuff.
A lot of people announced a lot of things this week.
Minister Manuel boasted about how much money he had collected in revenue this year which means that he will have to borrow less than budgeted to cover a smaller than expected deficit. In principal this falling demand for money ought to reduce its price. i.e. interest rates should go down. However, the worst kept secret in the market these days is that Governor Mboweni intends very firmly to raise interest rates just as soon as he can. He’s fretting about inflation and the interest rate lever is the only one that most central bankers have protruding from the floor in their 27th floor office with private washroom. He’s dying to give that lever a tug.
Anglo American’s secret was a lot better kept and the news of their major restructuring probably caught many investors unawares. It seems likely that we will need to change our view and rating of this giant corporate as it undergoes this metamorphosis, but initially the market liked the news. Especially the bit about returning a billion dollars to shareholders. Am I alone in thinking it odd and sad that some one like Anglo can’t themselves find projects to spend that money on?
Probably they were thinking that we poor taxpayers are going to need loads of extra cash soon to help meet the terrifying new R20bn cost of constructing a special train in Gauteng. Leaving aside the fact that there is already a court battle raging between some of the partners in the construction of this baby – and R20bn is worth squabbling over – one does sort of wonder how anyone thinks they will get this kind of cash back, even over 20 years. We certainly won’t expect the answer to this sophisticated project finance calculation from the official who claimed that the escalation in the cost from R12bn over three years was due to inflation. That works out at an inflation rate of about 18%pa! But to be fair, he also admitted that the previous estimate omitted VAT! I wonder if the new wild guess leaves out the cost of money or some other small detail. I have little faith that anything other than the actual construction (no engineer will ever refuse to build something challenging and expensive e.g. Channel Tunnel) will turn out well.
My claim that the market will not again in this cycle, challenge the early October peak has come under pressure this week. Prices have shown a quite spirited recovery that fortunately has not yet blown the forecast out of the water. Nevertheless, the JSE month-end portfolios will be produced tonight and things will look a lot brighter than they did just a few days ago.
James Greener
28th October 2005
