The bull is pumped up with all the joys of Spring Day. The market is flirting with record highs. Almost every company is reporting record profits. The new national soccer coach has landed a deal where the pay slip program will need adjusting to accommodate extra zeros, some of which will go at the end of the salary line and just one will be needed for the tax deducted line. His arrival must not be confused with the appearance of The Lion King on a Joburg stage or with the launch of Neotel. Both will be hoping to make money as much money as he will. Neotel is the name of the new Telkom competitor. During the doubtless lavish launch ceremony they announced that among their customers they are proud to have Cell-C (the mobile phone company that has yet to make a profit), and Telkom itself. Bizarre. Am I alone in wondering about the origin of the name? Might it have something to do with the news that modern day man has some Neanderthal genes coiled up in his DNA?
But us old bears who root through the news for something to worry about have been hitting pay dirt this week and it is all pretty scary. Every economic number published these last few days has led me to wonder if Governor Mboweni might not surprise us with an unscheduled increase of the repo rate. He has told us that he is a keen observer of the inflation numbers and he will not have missed that PPI is above 8% (a three year high). In addition, how about those figures that suggest that the nation has 25% more cash to play with now than it did a year ago? There is no mystery about where the money is going. Imports in the last 12 months have totalled almost R400bn. This is a record, but more worrying, it is about R50bn more than we earned from exports in the same period, despite the record high prices of the commodities we sell. Other upward pressures on the price of money are seeping into the system from the news that Eskom is going to start its long overdue building of a few power stations for which it plans to borrow R3bn.
I have not enjoyed any overseas holidays for a while nor have I needed to add to my fishing rod and reel collections or even to my single malts so my own impression and experience of the current bout of rand weakness was that it was not so far particularly savage. I was therefore astonished to see that against sterling and the euro our currency has in just a few weeks given up more than half the recovery it struggled to compile over the four years following its collapse in the closing weeks of 2001. Although Finance Minister Manual has been telling students that “engineering is more fun than banking”, I would think that any banker on the currency desk would disagree. But someone will soon begin to grumble about building barriers to stop the currency leaking away and so there’s another reason to expect higher interest rates.
Now the theory is that when interest rates go up, the stock market goes down. However, so far that theory is getting a thorough pasting. The All Share index returned 5.4% total return in August with some rate-sensitive sectors, like property, doing particularly well. Bonds, on the other hand did not perform at all in August so it looks as if someone is alert to the looming problems.
Do not panic yet, but it looks as if commodity prices (expect for gold) are on the way down. And the All Blacks have called up the A team to deliver the coup de grace in Rustenburg tomorrow. Is there any good news? Oh yes. It’s Spring Day and summer is a’coming in.
James Greener
1st September 2006
