The problem facing the markets, as I see it, is that there is a second wave of debt related issues still to wash across the USA. An unimaginably large amount of money has been borrowed, much of it by the US government itself. The properties which act as security for many of the private sector debts are mostly now worth considerably less than the loan – a position known quite whimsically as “being underwater”. In the commercial and financial worlds the security for the debt has turned out too often to be a piece of paper bearing promises of future cash flows which are very unlikely to appear. In the government’s case the security is the Full Faith and Credit of the US nation, not to mention a printing press with helicopters on standby. One of the biggest lenders to the USA is China and it has recently been looking at this rather tatty list in alarm and instead of providing any more loot is buying stuff that they can touch and store – like minerals.
The ability and indeed inclination to service the debt is hampered by people losing their jobs and firms losing their customers. Inflation, which is very often the mechanism by which the relative threat of a debt is reduced, is also not happening. The state’s response has been to print money and virtually to give it away. The free money is landing up at the banks who are celebrating this bonanza by declaring record bonuses all round. Politicians and bureaucrats fearful of losing votes are thrashing about trying to regulate that every one gets what they need whether or not they deserve or earned it. But I doubt if they can manage to create yet another prosperity boom. Beautifully crafted quarterly earnings statements have been “beating expectation” and the trumpets blast another fanfare. The Emperor is reportedly gorgeously attired and none dare say otherwise. This situation demands a very large cautionary notice.
Meanwhile, on the JSE, reporting season has tailed off and it turns out that average earnings for financial sector companies are down almost 50% from a year ago. The share prices have not yet reflected that and the PE ratio of the sector index is close to 20. This seems way too high for an industry that has yet to disclose just how difficult South Africans are finding it to service their loans. The Governor made this task no easier this week by eschewing one last prod of the interest rate pedal before ambling off to his farewell party. Given his penchant for single malts I am sure that the Reserve Bank shareholders will have secured for him as a farewell present, at least one of the three bottles of 50 year old scotch priced at just R150 000 and now available in SA.
Despite the rather petulant claim by Minister Patel that his Economic Development Department was in charge of micro and macro economic planning, it seems that actually he is being left in the dark. Other people who boast of much better sources were all over the media with the mines nationalisation story again. And there was also a terrifying idea about pegging the currency that was denied as swiftly as it emerged. Nevertheless, the old smoke without fire adage is often useful and it is alarming to discover that there might be such lethally bad ideas doing the rounds in the corridors of power. The country’s major mining house set about its own program of reducing its potential value for anyone by losing a host of top brass and putting some assets up for sale. Mr Malema may need to hurry if he wants to try out an office at 44 Main Street.
Rather than ridicule the idea of visiting teams donning bullet proof vests we should be encouraging foreign players to consider full battle gear when trotting out on to fields here. With the opposition dressed up like that there is just a faint possibility that one of our Bafana Bafana stars might get lucky and outrun a defender.
James Greener
23rd October 2009.
