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Drink the bubbly before the politicians ... |
Drink the bubbly before the politicians open their mouthsASSUMING that you haven't been raped, robbed, hijacked or mugged, the year has got off to a pretty good start. The rand has strengthened against the major trading currencies and, for a change, nobody is in quite such a rush to buy their currency for overseas trips. Foreign investors are back in the bond market and a combination of local and foreign buying have bought the long bonds down about 1.25% since the beginning of the year. The popular press have leapt onto the bullish bandwagon and talk of imminent interest rate cuts whenever the money market shortage drops, only to revise their forecasts when the market shortage jumps up again. December's dire warnings about the dangers of consumers using their credit cards to go on a Christmas spending spree seems to be irrelevant now. Presumably they either paid cash or didn't in fact go on a spending spree after all. All of which tells us two things. Firstly, nobody really has much idea of what is going on when it comes to predicting interest and exchange rate movements and, secondly, we have become so used to bad news during the past year that we are inclined to get over-excited at good news. Should we really be cracking open the bubbly because the rand is at a six-month high against the dollar? After all, it's still more than 20% weaker than it was this time last year. That's rather like celebrating the amputation of only one leg instead of both of them. If the government hadn't thrown away great economic opportunities a year ago we wouldn't be hobbling around on one leg now. The uncharitable explanation for the financial market's current strength is that we have been blessed with an unprecedented period of silence from the politicians. Give them a few weeks, say the cynics, and they'll manage to undo all the positive sentiment of the past month-and-a-half by inviting Col Gaddafi over for tea or selling weapons to the Syrians. THE charitable view is that the appointment of James Cross as the Reserve Bank's deputy governor responsible for foreign exchange and capital markets has restored confidence to the markets because he is widely regarded as a highly experienced central banker. His potential as a successor to Chris Stals could also help to reduce the effect of the recurrent rumours of Stals's resignation, although I suppose a rumour of Cross's resignation might soon become fashionable. The President's speech at the opening of parliament merely reaffirmed the government's commitment to the macro-economic plan and the phased removal of exchange controls without actually going into any detail about either. We are now looking to Trevor Manuel who, I am informed, is on a "charm offensive" to tell us more in the Budget on March 12. What investors are hoping is that exchange controls will be abolished as soon as possible and that the macro-economic plan will cease to be merely an economic buzz phrase and will become a reality. If that happens the Minister of Finance then has the unenviable job of selling what looks suspiciously like "Thatcherism" to predominantly left-wing unionists. Judging by the cautious statements emanating from the Reserve Bank, the complete removal of exchange controls is still some way off. While January gold and foreign exchange reserve figures may have been encouraging, the trend would have to continue for many months to make the abolition of exchange controls even a reality. The other problems facing the Reserve Bank are the battle against inflation and the growth of credit. MANY South Africans lead such empty, insecure lives that the only way they can satisfy themselves emotionally is by borrowing vast amounts of money to buy cars that they fervently hope will project the personality they aspire to. We must be one of the very few countries where a car costs as much as a house. While people are willing to go into debt just to drive the right car, we have very little hope of reducing our reliance on credit. The fact that foreigners have bought R3-billion of government bonds since the beginning of the year may sound impressive, but we should remember that lending the South African government money is not the same as investing in South Africa, building factories and creating jobs. The bonds Wall Street buy today they can sell tomorrow if they feel so inclined. Real, tangible investment will come only when we succeed in creating a civilised, crime-free society.
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