Friday, 30 May 2008


There must have been a fair bit of rushing around at the Reserve Bank yesterday when Governor Mboweni’s remarks about wanting to raise rates by 200 basis points hit the headlines. Clearly whoever his minders were the previous day, had allowed him to get out of sight, and were unable to stop him putting his foot firmly into his mouth. Obviously the governor utterly failed to appreciate that the prospect of money becoming very much more expensive would have such a dramatic effect on sentiment. Presumably he was trying to frighten the inflation monster into joining all the other unfortunate visitors and board a bus for Maputo or Mbabane. Actually I don’t think that the monster was even listening, as his present primary residence appears to be somewhere out there in the world’s commodity markets.
You have to feel a little sorry for the governor who is required to spend his time in a huge office high up in Pretoria with just a single large dial on the wall and a lever set in the floor next to the door leading to the executive washroom. His job description is to pull the lever whenever the needle on the dial rises above 6. It is now at over 10. His speech this week was merely a warning that he was taking his job seriously.
The problem is that there have now been 9 tugs at the lever since the middle of 2006 when the needle on the gauge was at 3.5. Might I respectfully suggest that the lever appears to have no connection to the reading on this dial? It is time to issue the man with a new job description. Any more lever tugging and we are in real trouble. Already some banks have issued statements that reveal that the business of lending money to consumers is becoming increasingly unprofitable. Any increase in interest rates is going to make things even worse. Maybe the already cheap banking sector is going to get even cheaper?
The All Share index return for the month is going to be in the region of 5% but this is wildly unrepresentative of the overall market. About half a dozen of the heavy weight resource and mining shares have done all the work and any portfolio without overweighting in these counters will look disappointing compared to the index.
Some commentators believe that they can see the prices of resources starting to decline and perhaps even the US dollar regaining some dignity. Given the incredible exponential rise in some of the former without necessarily any similar growth in demand or fall in supply, some big price pull backs would not surprise me. I am less convinced about dollar strength, I will, however, concede that the undoubted recessionary conditions that are spreading across the US must be revealing some very tempting and under-valued assets priced in dollars. It would be ironic if the Americans woke up one day to find that the Russians and the Middle Eastern oil producers owned them.
Back home, if there is anything good that might emerge from a recession it is the hope that falling tax revenues will see a substantial thinning of government payrolls employing people to do things like calling for tenders to conduct a status quo analysis of the Gauteng Funeral Undertaking Industry. The successful bidder will also be required to “identify socio-economic opportunities, gaps and challenges that are within the industry”. Once again some buffoon thinks that public money will discover opportunities that private entrepreneurs are too stupid to identify. Why does this idiot have a job?
Lions for the 2009 Super 14 trophy? Bafana Bafana to qualify for the 2010 World Cup?
James Greener
30th May 2008