Surplus vs Deficit EM Currency Performance

Great chart by Goldman Sachs brought to my attention by colleague Gareth Brickman. Deficit currencies getting hammered, which I’ve been warning about for ages. It should be the SARB’s job to prevent imbalances from building in the economy, and avoid blow-off currency weakness and interest rate hikes as we’re seeing at the moment.

South Africa Interest Rate Outlook

Economists and the market now anticipate that the Reserve Bank will hike the repo rate this week, and if not this week, in the next three months. In June 2013 my colleague George Glynos and I outlined ETM Analytics’ interest rate outlook. We wrote that: “Baseline view that repo is hiked 50bp and in the event of a ZAR closer to 11.0000/dlr possibly a second 50bp hike in a short-lived hiking cycle, with rate cuts recommencing perhaps 6-12 months after hikes. In other words, 12-18 months from now repo could easily be 5.00% but with rate hikes and cuts between now and then.” We got quite a bit of flack from the market back in June for putting out this view that rate hikes are on the cards, but it’s nice to see the market has come around to this view now. Download the full report after the link.

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Re: The Water Crisis

Eyewitness News has done a good expose of how deep the SA water infrastructure crisis runs. EWN reports that:

According to the latest census, nine out of 10 people have such access. But the reality on the ground, from Nkandla to Stellenbosch, paints a very different picture. The last seven years have seen a dramatic drop in how communities perceive the quality of their water. Millions of people don’t have access at all while others report queuing for up to ten hours to get a single bucket of water.

I’ve written about the water crisis in SA many times before (see here). This is a chronic and systemic crisis that will continue to grow for many years to come. The poorest people of South Africa will be worst affected.

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Research Featured in Marc Faber’s MMC Report

My Africa investment strategy research was published by Marc Faber in his Monthly Market Commentary this month, available exclusively to his subscribers. The report titled The Africa Boom: It’s a ‘Government Cycle’, Not a ‘Business Cycle’ was sent as a standalone in addition to Marc’s MMC. Link. Visit Marc’s website.

The Retail Boom in SA

I’ve written about the consumer and retail boom in South Africa many times in recent years – most recently in “SA Mining at ‘Breaking Point'”, “South Africa’s Regressing Economy”, and “Impact of Real Interest Rates on Retail and Manufacturing.”

Retail spending is being funded mostly by borrowing from foreigners and locals selling assets to foreigners. We’re selling our capital stock to foreigners and spending the proceeds, not reinvesting it in manufacturing and productive capacity. A low-real interest rate environment means SA is living beyond its means. It’s a highly bearish long-term development for the SA economy.

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World’s Major Central Banks Reaffirm QE to Infinity in Past 12 Hours

The US Fed, Bank of Japan and ECB have all in the past 12 hours announced an extension of QE policies.

The US Fed said it will prolong its $85 billion per month printing spree.

The Bank of Japan this morning “maintained its commitment to unprecedented monetary easing.”

While news is just breaking that the ECB announced its temporary currency swap lines with other central banks will become permanent.

Coincidence that this all happened in the past 12 hours? It’s a way of debasing currencies at the same time, so the market doesn’t single out either of these currencies in a speculative attack. It would seem that these money printing announcements are being carefully coordinated and timed so these currencies weaken together.

Must Watch Commentaries on the Fed’s Non-Taper

Watch both and listen carefully to the commentaries of two very big names in the world of investing and asset management. In particular their comments on the insanity of continuing with QE at the current pace, who benefits the most from this (the wealthy such as them), and the inevitable major collapse this sets the market up for.

Watch this clip from 8 minutes in if you can.

Labour Unrest in Cape Town

Some first-hand intel on what’s going on down in the Cape:

A friend who employs workers in the Somerset West area told me last week his workers who live in the nearby Lwandle township near Sir Lowry’s Pass are petrified of coming to work as there has been seven (7) people killed by labour union employees/representatives/members/thugs for going to work and being “undisciplined”. Although his employees are still coming to work, as they cannot afford to go without the income to support their families, they are having to dodge these murderous thugs to get into and out of the township safely.

A team of workers employed by my dad were told to stop working on a construction site or face attack by labour union thugs. Moreover, his foremen collect employees (as an employee benefit) near the Philippi Township at the N2 off ramp near which many of them live, but they are being attacked if seen climbing onto a work vehicle. Not only are the resident workers not safe, but the foremen and the vehicles they drive. As a result the workers are having to be collected further and further away from the township. Intel from the workers is that there are thugs manning the entry and exit points to the townships and that they are interrogated, Nazi style, to find out where they are heading off to for the day. They don’t know who these Union Nazis are.

Another friend who owns a major civils construction business in the Western Cape was attacked while in his Toyota Hilux vehicle on site. His digger loader that was also on site was also attacked and greatly damaged. A group of 20-30 Union Nazis attacked his vehicle and digger loader with rocks and knopkieries, doing significant damage to both vehicles. This was to serve as a threat and warning not to come back to work on site until the strikes have been resolved.

None of the above is positive for the prospects of employment creation or reinvestment into businesses down in the Cape. I suspect this trend is nationwide.

A Challenger To SuperSport and Dstv?

Great article by Alec Hogg on BDlive about who this serious challenger is:

A decade and a half after Nethold died, Naspers’s pay-TV cash cow is now at risk. Mr Rupert’s South African arm, Remgro, holds 31.2% of Sabido, the media division of black-owned conglomerate HCI. Sabido is best known for its stake in e.tv, beneficiary of South Africa’s only private free-to-air television licence. Fifteen years after its launch, the television station generates earnings of almost R700m a year and was recently valued at R8.2bn.

E.tv catapulted former trade unionists Marcel Golding and Johnny Copelyn into the ranks of the super rich — their HCI shares are worth R1.1bn to Golding, R700m to Copelyn.

Next month, Sabido launches OpenView HD. It has Multichoice in the cross-hairs. For consumers, OpenView has an irresistible price point. Pay R2,000 for the installation and get 15 channels for free. No monthly subscription charges — ever.

OpenView is touted as a Golding-Copelyn initiative, an extension of e.tv’s drive into the African continent. But for Remgro’s chairman, it is personal. Mr Rupert has large interests in the sports world, the critical segment for Multichoice’s R625 a month top-end viewers.

Rugby is the obvious starting point. His empire extends to the MARC Group (formerly SAIL), which controls the Blue Bulls and has a substantial stake in Western Province.

Mr Rupert is a global figure in golf. And through the Laureus Awards, his influence stretches further. He is sure to call in favours from a vast network of friends, associates and those who simply fear him.

Mr Market has not paid attention to the OpenView challenge. Naspers shares gained 25% in the past three months, adding almost R100bn since news leaked of the new competitor to its pay-TV operation.

Read the full article here for the background on what could be great competition for the digital tv and sports tv market in SA and Africa.