Tag: Politics

Wall Street Analysis


Private investors in South Africa should always keep their eye on what is happening on Wall Street – because the long-term trends on stock markets around the world, including on the JSE, begin there. As the old saying goes, “When Wall Street sneezes, the rest of the world catches a cold”.

The S&P500 represents the weighted average movement of the 500 largest companies trading on Wall Street and we see it as the most useful index for establishing what is happening in that market.

We all know that the S&P500 is in the throes of a great bull trend – one which has been going on for more than ten years which makes it a record as far as bull markets are concerned. That bull market is being driven by three major forces:

  1. The massive monetary policy stimulation which occurred in the decade following the sub-prime crisis of 2008.
  2. The fall in oil prices in 2014. While the oil price has recovered somewhat, it is nowhere near where it was in March 2012 – when North Sea Brent reached $120 per barrel.
  3. The massive advances in technology which have and continue to introduce new and profitable efficiencies in the way that business is conducted.

You should also bear in mind that the low oil price has kept inflation rates very low world wide – despite unprecedented quantitative easing and very low interest rates. Central banks have been able to maintain low interest rates precisely because inflationary expectations have remained very modest. Read More

The Confidential Report – August 2019


The Rand

For most of June and July this year, the rand was strengthening as international investors became more confident of the reforms which the Ramaphosa administration was implementing. Now the battle between Ramaphosa and the Public Protector has become sufficiently aggressive and dangerous to unnerve international investors – causing some of them to withdraw their funds from our government bonds with the result that the rand has fallen 7,5% in the last two weeks.

The yield on our R186 long bond has increased by 6,3% to 8,46%. Overseas investors are now willing to forgo this relatively high return because of the increased political risk in the country. Clearly, this trend is not good for South Africa or private investors. The fight within the ANC comes on top of the problems of financing Eskom and lower tax collections to indicate that the government deficit is probably going to widen substantially. Moody’s is under mounting pressure to follow the other ratings agencies and downgrade us to sub-investment.

Unfortunately, it is very difficult to ascertain exactly what is happening behind closed doors. We can only watch the markets, especially the rand and the yield on the  R186 for clues – and right now the news on that front is not good. The markets are communicating that there is a chance that Ramaphosa might lose his position of power in the ANC – and if that happens then the economy and the stock market will be in dire straits.

A new concern has arisen with RMB’s John Cairn’s saying that there is a high probability (47%) that the rand will fall by as much as 30% or more once the US begins a new cycle of reducing rates over the next year – simply because it always does that when interest rates are falling in the US. Against this, it seems that the recent cut in rates in the US is just a “mid-term adjustment” and not the beginning of a new trend of lower rates. Read More

Rand Strength


For most of June and July this year, the rand has been strengthening as international investors became more confident of the reforms which the Ramaphosa administration is implementing. It has, of course, been very volatile because it is buffeted by many factors which are outside South Africa – most notably the probable reduction of interest rates in the US and various developments in other emerging economies. But Ramaphosa’s decision to re-appoint Kanyago as Governor of the Reserve Bank and two long-serving insiders as his deputies has largely put to bed the fears surrounding that institution and the talk of quantitative easing. The rand responded positively, but now a new concern has arisen with RMB’s John Cairn’s saying that there is a high probability (47%) that the rand will fall by as much as 30% or more once the US begins a new cycle of reducing rates over the next year. Since the election result the rand remains in a strengthening trend:

Rand Dollar Exchange March to July 2019 – Chart by ShareFriend Pro

Read More

The Confidential Report – July 2019


US Economy

The US economy has been expanding for 121 months – a new all-time record. This persistent growth over such a long period of time has seen the unemployment rate drop to just 3,6% – its lowest level since the 1960’s. And that growth is being followed by a strong bull trend on the S&P500 which is now in its 11th year (it started in March 2009). Economists in America are asking questions:

  • How long can this go on?
  • With unemployment so low, why is inflation below 2% (it was 1,8% in May)?

Economic theory says that once the economy reaches “full employment”, usually defined as somewhere when the unemployment rate drops to between 4% and 5%, then wages will begin to rise leading to inflation. But the average wage in America is remaining stubbornly low. Economists are at a loss to explain. Read More

The Confidential Report – June 2019


US Economy

The opinions of the investors of the world are averaged and expressed in the various indexes of major world markets, especially the S&P500. They have recently (just a month ago) pushed the S&P500 index to a new record high (2945 on 30-4-19). And the data coming out of the American economy is confirming their optimism. The US economy grew by 3,1% in the first quarter of 2019 – easily beating the average forecast of 2%. A good chunk of that growth came from private consumption expenditure (PCE) – which shows that consumers are spending. This is not surprising given the better-than-expected results from the S&P500 companies and the extremely low unemployment in America. At the same time, the US economy added 263 000 new jobs in April month – easily beating analysts’ forecasts of 190 000. This brought the unemployment rate down to 3,6% – its lowest level in 50 years. Hourly earnings growth was up 3,1% year-on-year at an average of $27,77.

So with all this good economic news flying around why is the S&P falling? The answer is quite simply Donald Trump. His aggressive attitude towards America’s traditional trading partners and particularly China is beginning to unnerve investors. More and more analysts are starting to talk about some kind of recession. The Trump tariffs are starting to bite.

A trade war makes no economic sense from any perspective – any economist will tell you. Everyone ends up losing. Aside from the tariffs on $200bn worth of Chinese goods, Trump last week announced a 5% tariff on imports from Mexico, effective 10th June 2019 and which would grow to 25% unless the Mexicans stopped illegal cross-border immigration into America. At the same time Trump has threatened around $200bn worth of additional taxes on Americans and put the United States-Mexico-Canada agreement (USMCA) into jeopardy. These factors are causing some investors to decide to sell out and await developments. In our view, Trump is feeling more and more pressure from the Democrats and the rising possibility of an impeachment. He is cornered and potentially dangerous. But can he really derail the economic boom in America? We don’t think so. In our view, the escalation of the trade war is probably temporary and in a few months’ time it will be history. It is far more likely that Trump is trying to use his executive powers to gain political points – or at least he is trying to distract Americans from his mounting personal problems. Read More