My SA recession prediction from November 2016

The political economy analysis below I published on November 3, 2016. It only went out to a few people and clients on email, and wasn’t published on my employer’s letterhead. It was my personal view that some folks requested. Now that the economy is officially in recession, some 8 months later (and according to Bloomberg only 1 in 24 had anticipated this recession as late as two weeks ago), I am publishing my analysis here. In the future I will publish my thoughts on SA macro on this blog as these views are personal and not what I’m paid to write about at work (I’m paid to write about frontier markets). I will however charge a small fee to gain access to pay for this site’s maintenance and for the time taken to publish during my spare time, after-hours. The next instalment will be out in the next few weeks in which I update my thoughts on SA political economy and how I see the way forward. My view on the politics has evolved slightly since November, as the situation has evolved (it looks like something between scenario 2 and 3 presented below is playing out).

I hope you enjoy this article. I’ve taken all graphs out the article as they were drawn using my employer’s resources. The thoughts are however entirely mine (and didn’t win me any popularity contests).

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Comment to Fin24 on Mining Charter economic impact

I commented to Carin Smith at Fin24 on the impact of South Africa’s new mining charter yesterday, in this article.

Economist Chris Becker is of the view that the new Mining Charter will mean that once global commodity prices and demand do eventually recover, South Africa will not benefit as much as it otherwise would have.

Other countries that are making it easier to invest in mining, like Argentina, are therefore likely to outperform SA on this front.

“I also suspect the local procurement law will put the existing mining services industry under tremendous pressure and lead to a shrinkage in this sector, making it even harder for mines to operate in the country,” said Becker.

“A vibrant and competitive mining services and suppliers industry is necessary to keep prices and services competitive and increase ownership, but property rights restrictions in this industry are likely to be a hindrance on this front.”

My fear is that this policy has been telegraphed for many, many months and is firmly in line with the ANC’s policy strategy as communicated in ANC policy conference documents since 2007. This suggests that the redistribution of property with racial quotas will not end with the mines. It’s all about executing the second phase of the National Democratic Revolution.

Renegade Report Interview – June 2017

I went into studio to chat to Jon and Roman about economics. Really enjoyed the discussion covering a range of topics.

“Economist Chris Becker joins the Renegade Report team this week. Chris expands on the differences between the divergent economic schools of thought, why Keynesian economics is most useful to State technocrats, and how Government’s incompetence has been good for the private sector. Roman explains why the poorest people in the world use private school and Jonathan reveals how private healthcare is flourishing in South Africa. The conversation closes with a frank discussion on cypto-currencies and how they may disrupt the status quo of State-controlled currency markets in the not too distant future.”

The Africa Boom

I contributed the following article to Dr Marc Faber’s Gloom, Boom, and Doom report in January 2014. It was an updated version of the argument my colleagues and I at ETM Analytics had been making to clients since around 2012. It was a warning to be careful of a coming bust in African economies and markets.

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Email me for the password. (The duplication of chart 2 & 3 in the report was the editor’s error).

At around the same time (December 2012), The Economist ran its Africa Rising cover;

And Renaissance Capital analysts published The Fastest Billion (November 2012).

If one invested in this Africa rising view in November 2012 by adding money to the Market Vectors Africa ETF, you’d  have wiped out 30% of your capital in USD. The exuberance had become a little irrational. If you bought in late 2012 and managed to sell at the 2014 peak you could have picked up at most 9% in USD.


The time you should have been buying Africa was back in 2000 (when Jim Rogers said the time was right in his book: “Adventure Capitalist”). Africa was an option on a developing commodity boom. Such a buying time will come again, but my sense is we’re not there yet. There are some opportunities across the continent, but they are few and far between.

On the decline of Joburg and SA

Here’s an except of an interesting article by Victor Davis Hanson titled The Destiny of Cities. In reading his discussion of the events that drove the decline of former great cities like Pompeii or Florence, and events that could lead to the same decline of New York today, it’s clear to me that these factors–capital flight and overly redistributive taxes–are already happening in Johannesburg, and Cape Town is clearly benefiting from this trend. When you look at South Africa as a whole, other major cities like London, New York and Hong Kong are benefiting from what’s going on in South Africa.

What could actually end New York, at least as we know it, is commercial failure. The chief danger would be a massive flight of capital, the sort of fate that doomed Renaissance Florence as a banking center. By the seventeenth century, the riches of the New World, Europe’s bustling Atlantic seaports, and Florence’s internecine tribal feuding finally made irrelevant the Medicis’ traditional role as the financial hub facilitating eastern Mediterranean commerce with Asia’s overland spice and silk routes. When Florence’s commercial income ran out and its bankers left, the Florentine cultural renaissance ended. By the eighteenth-century age of the franc, guilder, peso, and pound, it was hard to remember that between 1300 and 1500, the florin had been Europe’s benchmark gold coin.

Examples abound of capital fleeing cities and taking culture with it. Long before the Reconquista drove Islam out of Iberia, eleventh-century Muslim Córdoba—increasingly ill-governed and burdened with court intrigue—tired of its allegiance to free thought, no longer welcomed freewheeling commerce, and became an intolerant Islamic backwater where books were burned rather than produced. Timbuktu, a sixteenth-century crossroads between northern and western Africa, declined as a center for learning after slave traffic and the gold and salt trade routes shifted. Money drives art and culture, and without the ongoing creation of prosperity, higher pursuits die on the vine.

If New York’s financial class fears that New York is becoming a completely redistributive city, it will likewise begin to leave. Already, the combined state and city income-tax rate is 12.62 percent for the highest earners, and in 2011, if Congress adopts President Obama’s tax policies, the combined federal, state, and local tax bite on each added dollar of income for those earners will exceed 50 percent for the first time in 25 years (see “Empire of Excess,” Winter 2010). New York’s increasingly confiscatory and redistributive policies, then, could drive capital to lower-tax southern or midwestern states eager to have it. There is nothing to prevent Charlotte from taking over New York’s preeminent banking role, or Dallas–Fort Worth—America’s fastest-growing urban center—from becoming the nation’s corporate capital. Atlanta, Denver, and Seattle could just as easily divide up much of New York’s cultural leadership.

Capitalists might also flee America’s climbing tax rates and regulations and re-create New York abroad by outsourcing its financial disciplines to Frankfurt, Zurich, Tokyo, Shanghai, and Singapore. The resulting impoverishment back home, in which spiraling municipal deficits would lead to calls for higher taxes on the fewer remaining high-income earners, would leave New York’s current attractions—musical performances, literature, theater, museums, foundations, and universities—without the high-octane financial fuel that propels them.

Commodity bear market for another 15 years?

Interesting charts from commodity strategist John LaForge at Ned Davis Research. He looked at boom/bust cycles of commodities in the past 214 years, and found that the average commodity bull market lasted 16 years, and the average bear market following the ultimate peak 20 years. If this cycle repeats again today, general commodities could be in a bear market for another 15 years (if 2011 was this cycle’s peak). I recently wrote I don’t believe the bear market will last this long this time, and also believe that agriculture prices and gold could outperform general commodities even in a general commodity bear market.

commodities boom and bust