You have to admire the rest of the Monetary Policy Committee for their ability to stand up to someone as large and determined as Governor Mboweni. According to him he was set to stomp the “Down” pedal in his office right to the floor at least twice but somehow the others managed to pull him away before the second lunge. So we got just 100 basis points cut from the repo rate and the banks immediately scurried off to drop prime and other rates by the same amount. The textbooks apparently promise that a bold move like this ensures prosperity for all. Supplied with cheaper money the theory predicts that people will surge back into the shops and businesses can prepare for boom times again.
Everyone is trying hard not to notice that this is not yet actually happening in America, despite the price of money there being virtually zero. In fact a horrifying fashion is emerging where it is cool to pay off debt and spend less than what you earn, while being thankful to have a job. The textbooks have no chapters on frugality and parsimony and prudence. They also are silent on the plight of savers earning less on their investments. It seems that Federal Reserve Governor Bernanke failed to return to the library all the books on how to avoid and survive a recession that he borrowed when preparing his doctoral thesis. He also seems not to have read them.
After dropping interest rates no one seems to know what to do next except ask the government to print more money to hand out to the people who were at the controls when we crashed into this swamp. No heroism on the Hudson here!
Among the more egregious of those decisions, involved banks buying bits of paper at prices that were many times more than they were actually worth. These now near valueless assets are accused of clogging up the channels of credit. One stunningly stupid suggestion is that that governments should set up “Bad Banks” which will then buy these bad assets. So does that mean that good tax payer money will be used to repeat the exercise of the buying bits of paper at the wrong price so that the folk who made the first mistakes will magically be cleansed of their folly and be able to claim large bonuses? Only a politician could invent something like this. Do we not demonstrably already have more than enough “bad banks”?
Gratefully here on the southern tip we have so far neither too much snow nor any bad banks. We do, however, seem to have bad busses. Unsurprisingly an acrimonious squabble is growing out of a government plan to regulate public transport. Taxi drivers are reportedly displaying their contempt of these regulations in their traditional manner. The count-down screen at the airport shows there are now less than 500 days to World Cup kick off. Hopefully that should be enough time to disarm the drivers and teach them about stop signs and red traffic lights. One-way streets can wait.
The pace of the release of company results and trading statements is hotting up. This week around half of them showed or predicted declining profitability but there have also been some pleasant positive surprises. I stay with my suggestion that cash heavy portfolios should be doing selected buying during weak periods. I like the Satrix Fini as it removes from me the problem of choosing which counters in this sector are the most bombed out.
Despite the KZN heat there is a distinct increase in the number of black and white rugby jerseys being worn. Much satisfaction resulted from victory in a warm-up game over a team of school boys from the Transvaal. I shall devote more time to the Super 14 only once I have understood why some English cricketer named KP should be priced at R10m. Has his country just beaten the Aussies at home?
James Greener
6th February 2009.
