South Africa - be pragmatic

NO investment is fool-proof. The hedging [protecting] against a loss on an investment is easy, cheap and an essential ingredient in effective management. Yes, at face value, I believe the US market is in for a correction. Notwithstanding, turn over any forgotten stone and you’ll find a dooms-day forecaster proven wrong.

Here’s the gist of it:

1. The fall in oil is stimulatory and the market knows this ie: the market is building extra profits into company projections. Given this prognosis investors are paying more for stock, currently, than they would have / should be. Why? Investors are discounting high prices on the expectation of improved profits sometime in the future. The flip-side of this stratagem is just as Grampie told us on his knee – 'don’t count ‘em before they hatch…' What would happen if OPEC cut supply, drastically? We know the US shale industry is a dark-pool of goo filed 'not for your eyes' under SES [State Economic Security] or 'policy' for short. There are countless other layers to this onion which we don’t have the time to peel. Managers lump these under ‘market risk’; a catch-all for ‘we just don’t know’.
2. The ECB has mooted / announced a 1.2 trillion approx. euro rescue package; supporting European sovereign bonds in the main ie: the ECB will buy up to 30% of all sovereign bonds [paper countries issue to borrow money]. It’s a backstop other investors like and on that basis only, will continue to buy the paper even though the paper is inherently risky. These governments then have access to cheap money and will continue to bolster their respective economies by spending. Spending isn’t mending and those chickens will come home; soon. Paradoxically Greece is our shining beacon for the future. Push ‘the people’ hard enough, for the economic ineptitude of their government, ie: reckless public-spending and the government is soon replaced by the far-left advocating social change & or defiance of the status quo. It’s Capitalism feeding on itself. Denying the fact is as stupid as sweeping Greece under the table by excommunication, on the sin of delinquency, when the son is the product of the father..
3. China’s growth hasn’t stalled but is slowing; that’s if you chose to believe the data that is. Their socio-economic troubles are just beginning.  
4. If the global consumer treadmill breaks down, we, the human race, are in for the high-jump whichever way you want to spend it. The oil which soothes the grind is a media-controlled process ie: through advertising and cajoling consumers to replace / buy / ‘need’ / aspire to etc. If that bias swings in favour of logic [We’re consuming resources at a grossly UNDERSTATED rate] then ‘consumerism’ or ‘anti-consumerism', more accurately, will be the catalyst for a financial Armageddon no one wants. It’s a hamster’s wheel of dread which keeps the lights on and we’re all on it. Make no mistake.
5. SA’s corruption is entrenched and it’s difficult to see how that can change for the better, certainly not under the current circumstances. The international perception is equally trite. Infrastructural decay; a paucity of foresight / planning and an ever-widening wealth-gap concludes as follows: - SA is on the road to becoming another failed state. It is the perception, at least, we surmise from international cash flow. The fall in the rand will tell you much the same.

In the end I’m pragmatic more than optimistic. We live in SA. We save / spend / and earn our crust in SA currency. Outside of SA most rand-based savings wouldn’t buy you a pregnant goat. The fiasco that is hyper-inflation, under conditions of a currency negatively out of control, is emblazoned on the psyches of most Africans and a sad state of reality for most ex-Zimbabweans. So we’re damned if we do and damned if we don’t. Whilst we’re here and living under this hatchet, all we do is what we can. The first step is to have your wealth invested in the correct instruments and in such a way that the vagaries of the future don’t impact too negatively because when the US goes we all go too.

Economics is neither tasty not nutritious!

Entitlement is deceptively subjective; politics an unfortunate structural requirement and yet, one thing's true, you can't feed your kids on hope and hype.

Tinkering with or restating GDP data is one thing; not addressing unemployment is something else altogether. Too many people from all walks-of-life and in most geographies are in financial stress. Although we're on the cusp of the next innovative age, there is little suggestion that the REAL issues are being adequately addressed. We're surprised when consumer-spending data shows that consumers are spending less.... Consumers are spending less because they, wait for it, have LESS to spend! Following on from that companies obviously stock less, build less, manufacture less and sell less... Why then the surprise when 'manufacturing data' deteriorates? Since companies sell less they employ fewer people who then spend less and so on. That's not economics it's common sense. Ironically companies reliant on technology and laying-off staff are merely 'passing-the-bill' hoping other industries employ the people they sell their goods to. It's not sustainable..

Do yourself a favour and employ as many people as you can. Your financial security, like mine, depends on them and theirs and his on hers and mine on yours.... The rest is rubbish.

China's stranglehold

BRICS - the acronym originally coined by Goldman Sachs, isn't exactly food for the imagination. Even so the moniker stuck and as the laws of gravity dictate and as the epithet suggests, like a stone has settled nicely at the bottom of the economic quagmire.

The original BRIC, for those of you who don't know, defined the broad association of the four major emerging economies; Brazil, Russia, India and China. In 2010 the plural was added with the addition of South Africa and since those heady days and the euphoria of that headline we haven't come up for air even once.

In 2007 the China-owned ICBC bought 20% of Standard Bank, South Africa's largest bank by assets & earnings. At that time it was the ICBC's largest investment outside of China. By inference it was also the perfect window into Africa; where local knowledge & expertise was acquired for not much more than 30 pieces of silver... Oh captain, my captain.

Simultaneously China continued to accumulate Africa's primary resources / commodities by all means legal.. - either by entreaty, trade-treaty or by IOU and we loved them for it. So enthralled were we that we filled boatloads of Africa's future at prices-past whilst the puppet-master piped the economic tune. Elsewhere EMEA and other 1st-world professionals / experts plied the Chinese with intellectual capital as fast as Switzerland could absorb the short-term Judas-change. China's only contribution was artificially-cheap labour & an enforced / exploitative work-ethic. Made in Italy was really Slapped-up in China and for a while consumers noted a disparity in quality. As a consequence China upped the ante. Quality became the focal point. Soon goods usually made by hand, with scrupulous attention to detail and by processes handed-down from craftsmen to craftsmen, were no better than China's / [Germany-sold]  mass-produced-machine-product. Craftsmen all around the globe perished on China's ambition to own the shelves & her propensity to exploit her own people. Mainstream media fobbed off these inevitable consequences as a spin-off of GLOBALISATION and derided the craftsmen for their tardiness and inefficiencies.

Back in South Africa China's easterly vacuum accounted for both our intellectual property & our hard-commodities. Trees were felled to make Chinese-built, Chinese-staffed & Chinese-supplied thoroughfares usually into the hinterland where more trees were shelled and more holes dug. That the infrastructure has subsequently begun to disintegrate is a discussion for another time. Shipping lanes were gridlocked with the outflow. Around about then ships, hitherto empty, started returning to South Africa fully laden with Made in China. 

Made in China carried a State-subsidised price tag & almost always significantly lower than the prices of similar goods Made in South Africa. Local product competed for a while, usually on loyalty, but in time-honoured fashion, consumers eventually felt compelled to take advantage of the foreign boon. Domestic industry suffered; the Textile-Sector first to mothball their looms. Ordinary, hard-working generations of South Africans were subsequently made redundant and became integral to the burgeoning unemployment statistic. Breadwinners became welfare-dependents and their own school-going dependents, expelled by circumstance to earn a crust. Perversely domestic commodities were ruthlessly wrenched from African soil and shipped unrelentingly East.

Next to go was the domestic white-goods industry. Tariff-free goods Made in China and subsequently dumped in the retail outlets, confounded strategic rationale. Inevitably there were more redundancies; more unemployment - more desperation; more crime. Consumers, bloated on cheap fridges & kettles, pointed accusatory fingers at the Executive for doing less than their crime-mandates had promised. The domestic currency slipped against the basket - and the unraveling began in earnest. Other domestic sectors, drowning in this sea of Chinese goods, adapted as best they could and by the only means open to them - redundancies. Staff-cuts, across the board,was a humanitarian tsunami that struck the core of South Africa's psyche. The rand deteriorated further. Goods became more expensive to import & in the absence of a domestic industry, we had no other choice. As a consequence we started to import inflation and around about then growth began to deflate. Our interest rates remained low - inflation targets notwithstanding. Lacking the economic backbone of a strong domestic industry and an employed workforce, South Africa's ability to stave off the inevitable became academic at best. Ratings agencies sat up and noticed. The rand deteriorated further. The financial-garrote pulled tighter.

In recent times the once-prosperous mining sector, wholly premised on Chinese-demand, has finally succumbed to fear-induced staff-cuts, the severity of which few people truly comprehend. China's structural over-capacity negates demand, even temporarily and South Africa's reliance on a single basket for all her eggs is a childhood lesson long unlearnt. More redundancies, less consumer-spending; more lay-offs, more bad-debt; bank failure - collapsed rand and so on. Perversely South Africa's recent cap-in-hand visit to Beijing is a suicidal injustice bloated by systemic incompetence. Who knew we could be this pathetic?

At last we find ourselves at the crossroads of desperation and yet the solution is as obvious as the day burns hottest in Africa. Reinstate national pride by protecting local industry; impose multiple import-tariffs on foreign-manufactured goods and negate China's exploitative reliance on her poverty-controlled people. Let's make knives & forks; stop the export of raw product and value-add our commodities in local industry.  Get our people back to work and back in school! Education is an investment for the future. We are a proud nation; a skilled nation and I don't see why we've allowed ourselves to become the economic slaves of a country which less than a century ago lived a rural life, largely uninterrupted by aspiration and an ambition to rule the world. Who's laughing at whom, exactly?