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.

[wpdm_file id=3 title=”true” ]

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.

afk

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.

Holiday from hell in J-Bay as Eskom collapses

Feel so sorry for folks who went to Jeffrey’s Bay over Christmas and New Year’s this holiday, a very popular summer holiday town on South Africa’s east coast near Port Elizabeth. The town experienced the resulting chaos of a grid collapse this holiday.

After three days of power outages, several parts of the town didn’t have water supply; without power sewage pumps shut down, and raw sewage spilled onto some beaches; restaurants couldn’t sell to customers because point of sale terminals weren’t working between the down fixed phone line and power outages, and in addition to this restaurants had to throw away rotting food as their generators couldn’t power all the refrigerators.

As the name of the Herald article suggests, it really was a holiday season from hell.

Take note of what happens and where the opportunities lie when grids collapse and towns are left in darkness. It’s likely coming to your town soon, might as well take some precautions for the inevitable.

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

Merry Xmas: SA petrol price on its way back to R10/liter

As long as government doesn’t take the opportunity of a collapsing oil price to pass-through a fuel levy to cover eTolls and bail out Sanral (don’t share the idea with them), petrol prices may be heading back to levels last seen in 2012. That means a price of around R10 a liter for 95 ULP petrol in Gauteng could be on the cards.

The global oil price in Rand terms has fallen around 40% from the levels of late 2013 and most of 2014.

oilzar

And the pump-price follows this global oil price pretty closely, although is less volatile, because it is regulated. As things stand there’s around a R1 per liter price decline coming in January.

sapetrol

 

Lower CPI inflation, cheaper to run your and Eskom’s generators, and likely to keep the Reserve Bank in a friendly mood with unchanged interest rates for longer.

Africa Eurobonds collapsing

It’s been quiet here on the blog, but as quiet as it’s been here I’ve been busy at work. I’ll try pick things up a little on the blog, but keep to twitter-length posts.

African Eurobonds are taking an absolute beating at the moment and the proximate cause of this collapse seems to be the oil price collapse where the Brent crude price has nearly halved in the last few months.

africaeurobonds

My thoughts on the –at the time, still coming– Africa Eurobond collapse are outlined in this report I sent to African Alliance clients on October 15, 2014.

Cape Town, Nairobi, London, and NY in next two months

I’ve hit the ground running here at African Alliance and published five macro & equity strategy reports in the past month. As a result the blog just hasn’t been a priority. I’m getting material together for upcoming roadshows to Cape Town, Nairobi, London and NY in the next two months. Our team has developed some good views , and we’ll be making some more big calls in the next few weeks as well. If you’re in any of these cities and would be keen to meet up for a drink or meeting, get in touch.