Friday, 18 December 2015


Maybe the most significant economic event of the week was the American Federal Reserve raising interest rates by 25 basis points. This isn’t large but did in fact double the previous level which had been held unchanged for a decade. It took the first women governor of that institution to find the courage to don a pinny and wade into the control room with feather duster and broom to unearth the dusty and unused levers that raise interest rates. The silver haired Janet Yellen emerged unscathed as did the markets and share prices perked up everywhere. The theory is that the rate move is a signal that Mrs Yellen and her crew have spotted signs of economic recovery on the horizon. That would be nice. The price of iron ore is at a lifetime low but has ticked up a tad in contemptuous response to experts recently calling it even lower. Perhaps the metal bashing industries are getting orders again.
There are only a few more trading days left this year and there is always a chance of a big surprise but it does rather look as if 2015 will deliver an All Share total return in the low single digits. About 3.5%pa say and almost all of that will be derived from the dividends received. This will be the third lowest positive total return in 40 years (there have been 10 negative years in that time too) which will probably prompt many optimistic calls for next year. The fact is that no one has any idea, but the long term annual average is about 20%pa -- which would be very welcome next year.
Despite the return of Pravin Gordhan in time to hand poor Des van Rooyen the world record for the shortest tenure as a finance minister, few financial factors have returned to the levels they were at when Number One tested his skill as a dictator. In particular, the currency is in deep trouble and the pundits fret about the news that the dreaded ratings agencies are fumbling with the “Junk” button. Efficient overseas fund managers will have long ago reached their own conclusions about South Africa’s limitations as an investment and adjusted their portfolios accordingly. However there are those who in the absence of doing their own analysis will rely on the remarkably fallible ratings outfits and so when the axe falls we can expect our bond and share prices to dip. This should be a good buying opportunity for locals.
Whoever is in the corner office at National Treasury – and on present form by the time you read this it could be someone other than Pravin – the worrisome facts remain the same. Every single day on average Treasury distributes R3.3bn to the tax eaters. But it collects just R2.8bn per day from the tax payers. This daily shortfall of half a billion runts is relentlessly added to running total of the government’s debt, which is now nudging R2 000bn. (Or in words, two trillion rands) Now, proper economists have ways of restating these enormous and horrific numbers so that they don’t look so scary. Expressing them as a percentage of the size of the national economy is a popular ploy which also allows for optimistic hand-waving, pointing out that when the economy grows these ratios will decline and happiness will prevail. This is true of course only if the economy grows faster than the debt. But our borrowings have doubled in the last 5 years, so we urgently need a regime which can get everyone trained and into gainful and productive employment in as short a time as possible. Without that kind of development the wild dreams about nuclear power, national health schemes and no-fee education will never become reality.
An hour after sunrise here in Durban on Tuesday it will be the summer solstice and from then it will be downhill to winter! Fortunately the decline begins very slowly so there are still plenty of long evenings for a braai next to the pool. Fortunately too there have been good rains and previously dry rivers are now flowing strongly again. The Blizbokke won the Cape Town Sevens tournament and the Sharks have a new strip. What’s not to like about 2016?
James Greener
Friday 18th December 2015