Once again the repo rate was left unchanged at 5.5% by Governor Gill
and her merry band of experts. It is getting on for two years since it was
decided that this was the perfect price for money and despite all that has
happened since late 2010, the rate has been held constant. This has provided a
great opportunity for testing some theories about the influence of the Reserve
Bank’s actions. The repo rate is stated to be one of the Bank’s main tools in
controlling inflation, but that particular metric has climbed steadily upwards
and out of the target range almost since the start of the no-change period.
This suggests that there is little connection between the two. Also despite being
at a multi-year low for so long, this allegedly critical interest rate has
certainly not promoted any useful economic growth. It also hasn’t prevented the
rand from being reasonably strong. Perhaps the low rates may have helped cause
equity market dividend yields to have grown thinner in the recent past. The
longer the experiment continues the more we will discover about how ineffective
intervention probably is.
Because it is always popular to heap derision on the banks, not many
people have noticed that the bank that advised Facebook during its recent stock
market listing in fact did a terrific job for their client. They managed to
sell truck loads of that company’s brand new freshly minted shares at almost
the top price they will ever reach. The fact that those buyers are now trying to
blame someone for their own greed will now provide a very entertaining sideshow
and in the meantime both Facebook and their advisors are buried under piles of
cash. Maybe Mr Zuckerberg will also make rockets with his money – a popular
geek hobby. Did you know that the JSE
listed a single stock future on Facebook priced in rands? For reasons emanating
from almost every word of that last sentence this is not a security you need to
buy.
There is still so much anxiety about markets globally that demand
for US long dated bonds – assumed to be as safe as it gets – are now trading at
miniscule yields of 1.75%, and in 10 years time you get your money back. What a
poor investment. If you bought a nugget of gold today the chances are very good
that in 10 years time it will still be exchangeable for about the same amount
of goods and services that it would buy today. And if we stockbrokers are to be
believed, buying a share with a dividend yield of 3.5% will provide at least
double the income provided by that bond, plus the reasonable chance that the
capital will grow in value by at least the rate of inflation. This investment
stuff is easy.
And it is getting easier as the bear roams across the landscape
clawing holes in prices. Another few weeks like the last and pretty soon there
will be some wonderful bargains around. Just be patient please. Much has
happened but a great deal more is still to come.
No one has any solution for the Euro land problems. The rules for
the creation of the euro currency are probably silent on the unimaginable
situation caused when a country manipulates their books to disguise the fact
that they are broke. Now in turn each old idea about what to do is dusted off
and put on top of the pile as if this time it will work. This week, folk
without any money and unable to borrow any, thought that it would be a splendid
idea if their hard-working but slightly boring friends, who can still find
lenders, did the borrowing and then gave the cash to them. Pictures of Frau
Merkel taken at the various talking shops this week clearly revealed her view
of that one. She also does not look that keen on the new chap that France has sent
in to bat for them.
Another year and my complimentary ticket to the Monaco Grand Prix
has failed to arrive. But I don’t suppose they get SuperSport channel 1 in Monte Carlo, so I would
miss the crucial Sharks Stormers game tomorrow night. The bigger problem of
course is the clash between the Grand Prix qualifying session and the Lions
clash in Perth
earlier on. Mind you even 16 points won’t help them now.
James Greener
25th May 2012
