Friday, 8 July 2016


Almost nothing that is happening supposedly in reaction to Britain’s vote to leave the EU was expected by the chattering classes. Certainly not that the next prime minister will be a woman! Nor that USD denominated assets would be the main beneficiary of what is presumably being seen as a flight to safety. The yield on the US 10-year bond is moving steadily lower and the price of gold is moving steadily higher. The first of these trades might unwind spectacularly when the awful reality of who might next get their knees under the desk in the Oval Office starts to dawn. The JSE is more or less unmoved by any or all developments anywhere and as yet there has been no price reaction to the considerable round of earning decreases announced in the past few months.
To a surprising extent, financial and economic analysis use data which are the small differences of large numbers.  Scientists tend to be wary of putting too much faith in this sort of data but our industry happily draws important and sweeping conclusions from information which is statistically not very robust. Undoubtedly if the degree of uncertainty in the source data of economic statistics could be determined and taken into account then the supposed short term trends on which so much bandwidth, airtime and printing ink is spent, will mostly all evaporate. Furthermore, particularly for raw data gathered by state agencies, the numbers relate to periods long past and probably have little bearing on what is happening on day of publication and into the future. A very good example of a data set compromised by the many inherent timing, collection and processing sources of error is also the largest and most scrutinised of them all. The Gross Domestic Product (GDP to its friends) of South Africa is now almost exactly R4 trillion per annum. Allegedly several years of expensive academic study are necessary to understand what this number actually means and represents, but this doesn’t deter anyone else in need of an opinion from pecking away at the keyboard and spreadsheet.
The key metric is of course the rate at which this GDP number changes. Increases are good, decreases are bad. And this week the IMF suggested that SA would see growth of just 0.1% in 2016. Now that is a mighty small difference (about R3bn after removing the (assumed) effect of inflation).  Barely the cost of a new presidential jet and far less than the amount Eskom have asked the taxpayer for in order to make ends meet. But it is positive, and so sighs of relief all round. What nonsense. The sole target is for economic growth which is undeniably and substantially greater than population growth. We need big differences.
There is way too much government happening here on the southern tip. Public sector expenditure is almost a third as large as the nation’s GDP, but is poorly allocated and prioritised. Minister Blade Nzimande has been told that it is not possible to accede any longer to the demands of the “#FeesMustFall” campaign and is muttering about inflation-linked fee increase for university students. This will likely pave the way for another round of protests getting underway as the end of year exam season approaches and students look for something to do other than swotting.
Another instance of small differences of large numbers has been evident this week where stages of 200km in the Tour de France have been won by mere millimetres. Something similar might be happening for the Lions as they edge towards the points needed to secure home games in the Super 18 play-offs.
James Greener
8th July2016