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
