“Currency Wars”- So what …?
A recent media article stated SA’s concerns around the US Federal Reserve’s intended repurchasing of $600Bn worth of treasury bonds. This in effect means that holders of these bonds would have massive amounts of cash at their disposal and this in essence would find itself into emerging economies such as ours where higher interest rates and equity returns would be attractive.
Let’s take a step back here…..Institutional investors, the largest losers in the recent global meltdown, within the portfolios they manage both for themselves and others are scavenging for any sort of sure-fire profit taking in order to return those same portfolios to values pre-2008-2009 crisis.
Now given this within our capitalist society, do we for one minute believe that there would be any partisan activity on behalf of these investors? Such to the extent that they would invest these funds locally within the US in order to boost the economy? We must be completely mad if we believe this. For goodness sake; JP Morgan has recently bought up all the available copper on the futures market, and guess what? A few days later copper started rising dramatically. Merchant banking continues to diversify!!! It’s all about portfolio and personal recovery and if we are honest with ourselves we would all act in the same way given the opportunity. In our previous newsletter I stated that: “it is senseless to purposefully weaken the currency in the absence of a commensurate sustainable initiative to ramp up local production and beneficiation for the manufacturing and export industry”. Now what is the US authorities going to do in this regard to prevent the flight of the capital? Clearly they are in a significant quandary, to put it mildly, and it looks they have no idea, frightening isn’t it?
With these funds finding their way into emerging markets such as ours, (upon which we are, by the way, very reliant albeit for preferred longer term investment) this will in effect cause our currency to strengthen and at the same time cause the domestic currency, in this case the US dollar to weaken. Nothing too wrong with this activity if the US has plans to massively ramp up production for export, as we will all be buying USA due to the cheaper dollar. If they do not do this, then all they are in fact doing is further weakening theirs and the emerging markets’ economies and that is the problem countries such as us have with this action.
“SO-WE-TO”?
Once we have battened down all the hatches, become operational efficient, what do we do to get us back on a growth path? Well we require fiscal stimulation, in the form of Government spending that will create employment, allow newly employed consumers to spend again, which in turn will allow businesses to invest in growth strategies. Sounds simple but of course the downside is inflation and in our case its enemy: interest rate control. A very significant war would also do the trick rather quickly, so maybe a combination of these factors are now required. Irrational, unethical, unlikely you might say? – well dear readers we need simply to reflect of the past 50 years and we will see that this exact trend is the only combination of factors that in fact leads to an upswing when in fact the government spending factor goes into the massive war machine support. We all realise I am not referring to SA with our grounded fighter planes, non sea-going submarines and 3 frigates, there is not much of a war we would arrange with that force. But the simmering Korean peninsula, Arab/Israeli stew and the Iranian concoction who knows what could happen. Watch this space.
We are into the festive season and the reality would be to continue to batten down the hatches. Successive quarters of all the positive indicators will indicate trends emerging upon which we can begin to plan new investment tactics, which will in all likelihood not be before June 2011. This means that we should remain in grindstone mode, achieving efficiencies in all aspects of our businesses to enable us to react promptly when these trends manifest. It is the ideal opportunity to spend time and effort on strategising and embedding this process into your business and your team.
As Rameses II said to Moses: “So let it be written, so let it be done”
YOUR FUTURE IS AT STAKE – INVEST IN IT NOW
We’ll continue the conversation next time, along the road of strategy.
