Naturally it was another week of record
setting share market indices and prices rising faster than earnings. The rand
has improved to where it was at the beginning of the year and bond yields have
fallen as well. Bulls are delighted but us bears are terrified and wonder how
this can ever end well. The explanation below doesn’t offer an answer to that
question but it might be one of the more important reasons for us being where
we are now.
Governments generally seem to believe
that having a balanced budget (i.e. spending only what they collect) is a sign of
weakness. Real governments run deficits and borrow money to buy the stuff they
need (like votes). This is a topic analysts quarrel about ceaselessly. Currently
the interesting bit of this discussion concerns the lenders of all this cash.
Traditionally, because the borrower is the government and therefore allegedly
the most reliable and trustworthy counterparty (!) in the marketplace, just
about everyone is prepared to lend them money. This large supply tends to result
in the price of that money (i.e. the rate of interest that lenders are prepared
to accept from the government.) being about the lowest in the land. In the last
half dozen years, the US
government’s profligate spending programs have obliged it to seek so much money
from the usual lenders that it became nervous of actually testing their ongoing
generosity too far. Increasingly, therefore, it began to ask the US central bank
(the Federal Reserve) to lend them the money they so badly needed. Now the Fed
itself doesn’t have much cash lying about but it does have the sole licence to
print the stuff and so to meet the government’s demands it has been rolling the
presses as fast as the ink could flow and using these nice new notes to buy government
bonds. The outcome of this program is that the USA is awash with money, much of
which has flowed into stock markets both at home and abroad thereby supporting
ever higher share prices. But it also means that the Federal Reserve now owns
about 40% of the US
government debt. That’s an extremely unhealthy proportion and commentators are
wondering and worrying how the Fed can ever sell all or any of it. Indeed if
the US
bond market got the merest hint that such a potentially large seller was making
enquiries, interest rates would probably soar skywards and threaten the very
fragile recovery that many claim to be able to see taking place. It is on this
simple knife edge that most of the world’s markets teeter. Fascinating.
The genius politician, who told an
election meeting that only citizens who have voted for the ruling party should
be eligible for government benefits, was too cowardly to complete the picture.
That is, only citizens who vote for the ruling party should be required to pay
tax. Sounds excellent to me. That would quickly shrink the size of government! And
after all it follows on from Number 1’s philosophy of not paying for things
that you don’t ask for.
The Gross Domestic Product of a country
(GDP to its friends) is supposed to be a measure of the level of economic
activity within that country during a certain period. It is understood in
descending order of capacity by some analysts, very few journalists and almost
no politicians. It is regularly tortured by anyone in need of a fact to support
a silly claim or idea. This week the headlines wailed that Nigeria’s GDP
had now surpassed that of our own beloved country and that therefore we were no
longer the big man of the continent. It turns out that our West African
competitor has crafted their new statistic by judicious application of long
overdue rebasing and adjustments to their data
and indeed their economy may or may not have been the largest in Africa for some time. Exactly why this is going to be a
problem has not been explained. Neither is it expected to be a sufficiently
loud wake up call for the communists who run our country. They will not pause
for a moment in their task of harassing and victimising private enterprise (aka
job creator). And as for our GDP, well standby for a rebasing!
Perhaps the problem with soccer is their
idea of friendly matches between national teams. Bafana are off to Australia and New Zealand for a pair of
“friendlies”. They would gather so much more home support if they called their
games Test Matches AND dished out two resounding thrashings. A rather special
Super 15 game this weekend where I am satisfied, whoever wins. The guys at the
bowling club do, however, object to my natty pairing of Sharks shirt with Lions
cap. Funny that.
James Greener
Friday 11th April 2014
