I just received the news that Chavez and Mbeki are signing a major, far-stretching energy deal (hat-tip to Vincent). I already wrote back in december that I suspect SA's next president Zuma to heavily incline to the extreme leftist Chavez . This is a very bad early signal of what will come under Zuma's command. Rest asssured the US and Europe are closely watching this evolution and surely not liking it.
"September 2, 2008 Venezuelan President Hugo Chavez and South African President Thabo Mbeki are expected to sign a strategic energy agreement during a two-day visit by Chavez to South Africa that began Sept. 1, South African commercial daily Business Day reported Sept. 2. Under the deal, South African energy firm PetroSA reportedly will receive oil from Venezuelan state firm Petroleos de Venezuela while exploring for natural gas off Venezuela and possibly acquiring oil production facilities in the country. PetroSA is also expected to promote the adoption of gas-to-liquid technology in Latin America."
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Sep 2 2008
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Aug 30 2008
Excellent articles in South African's Financial 24 and The Financial Times :
Johannesburg - Finance Minister Trevor Manuel said on Tuesday evening that South Africans were not adequately saving for tomorrow and preferred instead to consume in a US-like manner. He said households were highly indebted and "South Africa’s next government will have to depart radically from a decade of conservative economic policy if it is to defuse a “ticking bomb” of poverty, unemployment and crime that threatens to blow a hole in the investment climate, according to an ally of Jacob Zuma, the frontrunner to become president next year".
Clear language !
In the Financial times :
...However, Trevor Manuel, the finance minister, later warned that abandoning inflation targeting would hurt “the poor and needy” most, saying a far greater problem was rampant middle-class borrowing to fund “sporty cars [and] huge houses ”...
...Mr Zuma and his backers have cultivated a base among the majority of South Africans who feel that a decade of fiscal restraint under Thabo Mbeki, the outgoing president, benefited foreign investors and a small black middle class but did little to raise living standards for the poor ....
... Expectations of change are reaching astronomical levels ...
...With a current account deficit now at 9 per cent of gross domestic product , South Africa is vulnerable to shifts in investor sentiment ...
...Public works “on a mass scale” could in part be funded by lowering incentives for investors and a “maybe painful” adjustment to the corporate tax system ... -
Aug 24 2008
I picked up the South African Times in the airport on Friday, the cover read:
" Six million can't pay their debt ":
Experts told The Times that the economic “perfect storm” — high inflation, including food and fuel, and the resultant interest rate hikes — have driven six million South Africans to the brink.
Rajeen Devpruth, manager of statistics and research at the National Credit Regulator, said that by the end of last year, 6.3 million South Africans had “impaired credit records”, which means their payments were more than three months in arrears or judgment had been obtained against them for outstanding payments.
That’s half of the 13 306 000 South Africans currently employed, according to the latest Labour Force Survey in September 2007.
I've been predicting this situation for over 18 months now. And still today, while the South African government is looking for thousands extra debt counselors , some peopleare still no realising the extent of the crisis and pretending the dip will be over in a few months from here. Think again !
Last week, Johann Rupert, chairperson of SA Remgro told to his shareholders that the South African recession could last another 5 to 10 years . Even Mbeki is extremely sceptical about South African Trade .
The signals are clear: South African retailers Woolworths and Truworths forecast a tough year ahead, only Massmart can keep its nose above the water with its low-cost stores .
Some people will state that the June-July 2010 Fifa World Cup will save the day . I have a different view: the Fifa World Cup is a huge risk for South Africa. When you visit Johannesburg, Port Elizabeth and Cape Town, you will understand that FIFA executives have expressed concern over the planning, organisation and pace of South African's preparations. And even if the World Cup will take place in South Africa, it will be a very disappointing event with the Chinese Olympics in the back of our heads. Also, June-July is winter in South Africa, not an ideal period to receive tourists. And on top of that, June 2010 willbe exactly one year after the elections.
To sum it up, next to the economical crisis, the country is also facing the following challenges: -
Aug 15 2008
Europe had a quarter of negative growth , another quarter like this and the Euro enters its first recession, which is likely to happen.
While the Japanese Real Estate market is crashing , the smarter US analysts are warning that there are HUGE shadow inventories of US foreclosed homes still to be released on the market ; and meanwhile Greenspan wants you to believe that the US real estate market will stabalise from 2009 on ... right. Expect this graph to go further downwards , drastically.
Today Chief Investment Strategist Richard Bernstein of Merrill Lynch stated:
"We believe that the investors seriously underestimate the extents of the credit crisis and the consequences of the deflation which will follow now".
I have written for the past half year on the de flation storms which are about to hit Europe and the United States.
Meanwhile in South Africa, Standard Bank has to rely on its offshore business to hit targets:
"Johannesburg - Standard Bank would offset the effects of lower-than-expected economic growth rate in South Africa with profits from its offshore businesses in Nigeria and China. One worrying sign for Standard Bank was the increasing problems the company was facing in its card division. The credit loss ratio in card debtors increased from 6.34% to 9.44% indicating that the consumer was becoming increasingly stretched ." 9,44% credit loss ratio in amongst card debtors, ouch !! Meanwhile Mboweni decides to not raise interests above the current 12% rate. This is a strategic blunder. Yes, I know, the general tone is that he did good in not raising the rates, because ""… the alarming rate at which cars and houses had been repossessed should be a matter of concern to Mboweni and the MPC. " At the same time inflation keeps skyrocketing and will go from the current 11,6% to 13% by the third quarter. Yet, Mboweni keeps the repo at 12%. Read that again: inflation at 13% with a repo rate of 12%.
At the same time, South African banks are turning into vulture hawks. If you put down a deposit on a property and FNB reassessed your loan and denied you your bond causing you to lose your deposit, FNB says that you should thank them because in actual fact you probably were going to lose a lot more money later on. No, I didn't make this up, it's happening, on a wide scale .
Mboweni claims "``Food and oil price increases continue to cloud the inflation outlook, but there are tentative signs that these pressures may be moderating.'' The wording makes me smile: Food and oil price increases continue to cloud the inflation outlook, but there are tentative signs that these pressures may be moderating .
Well, I think Mboweni is wrong. "Prices will decrease when supply surpasses demand. And that will happen South Africa focuses now on expanding infrastructure and assist its people to be more productive. For this reason the government should now focus on the production side of the economy and increasing skills rather than simply placing money, in the form of social grants, in people's hands. When increased production is attained prices will be constrained, which will eventually also curb inflation." These are not my words, but a literal quote from this article . And the worst is, Mboweni will blind people, inflation will go down…well the CPI will go down…because the government plans to change the measurement of the consumer price index next year. The SA statistics office said on July 1st it will reduce the weighting of food in the CPI, which will lower the inflation rate… artificially ( see Bloomberg ).
Meanwhile, at the annual Rode conference on property in South Africa today " Johannesburg - House prices are expected to drop by between 10% and 15% in the next 12 months as rising interest rates and tougher credit-granting laws force buyers to tighten their purse strings, a property expert said on Thursday." Prices in Plettenberg Bay are taking a dive and when asked for the reason of selling, 18% of the people mention emigration, this figure is up from 7% 12 months ago .
Standard Bank posted a 7% rise in first-half normalised headline earnings per share (EPS) to 481,8 cents today, but said rising bad debts meant it could not give full-year guidance . When banks come with these messages you better brace yourselve for the storm, especially when you are in real estate business. One of the "saviours" of the housing market is supposed to be the Black Diamonds , the young black professionals who have been spending money like crazy the past few years. Only one problem though, they've been spending borrowed money (mainly via credit and store cards) and getting into a heap of debt, and now that debt is becoming overwhelming, read the details here .
Conclusion:
The monetary loosening of Mboweni worries me; of course it 'could' boost sentiment a little bit on a short term; but it will come at a very, very high price; if you lived in Brazil in the 70s and 90s, you know all about that.
Zimbabwe worries me.
And what worries me most (although there are some opportunities in it for the well connected) is the ongoing land reform in SA .
As I've been saying repeatedly: not just an ordinary global economical blip . -
Aug 14 2008
Mbeki failed again in his mediation role . Tsvangirai "stormed" out of the negotiations brokered by South African President Thabo Mbeki late Wednesday. Reports from Zimbabwe indicate that Mugabe may now be trying to make a deal with a small opposition faction and cut Tsvangirai out altogether, despite Tsvangirai's strong showing during elections earlier this year. Stability is far from being reached .
Meanwhile, to keep things on a lighter side this hilarious election propaganda poster from the streets of Harare.
~ picture from Gregor Rohrig who's currently in Zimbabwe -
Aug 3 2008
Some people are hoping Zuma miught become a copy of what Lula meant to Brazil, so do I . Only I fear it's idle hope. There was the laughable way his rape case was filed and let's hope the currently ongoing corruption charges, which involves arm dealing doesn't go the same route. But then again, has Mbeki been that good to South Africa ?
This week, the strategy of his lawyers took a major knock when the Constitutional Court rejected Zuma’s appeal against the Supreme Court of Appeal’s decision to allow the state to use 93000 documents it had seized in the August 2005 raids on his homes and offices and those of his lawyer, Michael Hulley. This is good news ! Zuma's party, the ANC is now lodging to have the case thrown out as amiuci curiae (friends of the court). Meanwhile they try every delaying tactic and consider constitutional changes which would prevent a sitting prsident from facing criminal charges.
Tomorrow is an important day for South Africa . The 'new' Africa deserves a Zuma standing trial . I'm sceptical however such will happen.
Monday update: Zuma entered court, video on CNN . -
Jul 31 2008
In South Africa, sellers are battling to recover their purchase prices as this article in businessday states . Also the agents are struggling for survivel and unfailingly honest and willing to co-operate. The New York Times follows the tone of voice in an article today on South African real estate property:
"Research shows an estimated 40 percent fewer mortgages were issued in the past 12 months over the previous period the year before, according to Colliers International. Although list prices have not come down, sellers are accepting offers well below asking. Residential sales prices across all categories have shown their biggest decline in 15 years — except for the extreme upper levels of the market, Ms. Uys said."
A buyers market indeed. Still, it's too early; wait until Q2 2009 to make your move. Inflation in SA went up to 11,6% in June and youn can expect a prime rate hike to above 16% in June; that'll put the knife on the throat of a lot of people.
Meanwhile Alexei Barriouevo has an excellent article in the same New York Times on the Brazilian Economy :
Brazil, South America's largest economy, is finally poised to realize its long-anticipated potential as a global player, economists say, as the country rides its biggest economic expansion in three decades. That growth is being felt in nearly all parts of the economy, creating a new class of super rich even as people like Sousa lift themselves into an expanding middle class. Still, the momentum of its economic expansion is expected to last. As the United States and parts of Europe struggle with recession and the fallout from housing crises, Brazil's economy shows few of the vulnerabilities of other emerging powers. It has greatly diversified its industrial base, has massive potential to expand a booming agricultural sector into virgin fields and holds a tremendous pool of untapped natural resources. New oil discoveries will thrust Brazil into the ranks of the global oil powers within the next decade. Yet while exports of commodities like oil and agricultural goods have driven much of its recent growth, Brazil is less and less dependent on them, economists say, having the advantage of a huge domestic market — 185 million people — that has grown wealthier with the success of people like Sousa.
Two countries full of potential, if you make the right moves, at the right time; seldomly we've lived such interesting complex times. -
Jul 29 2008
In the Belgian news today: new apartments in Belgium drop 15% in price by the end of 2008 .
Only 2 weeks ago De Morgen was still wirting that Belgian real estate prices were growing fastest in Europe , or how deceivingly inaccurate the Belgian mainstream press is.
I’ve been writing for the last months about the deflationary hurricane that is coming towards Europe, the United States and even South Africa.
Surprised to read de flation, while all the newspapers and politicians are screaming inflation?
Let’s define inflation; dictionary.com defines inflation as:
“A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.”
Mind the "caused by". The problem with these “because of” definitions is that you don’t know why prices are rising or falling. Example: is there any way to decide what % of the increase in the price of oil (or any other product) was "caused by an increase in available currency and credit beyond the proportion of available goods and services"? The answer is no, of course.
The proper economical definition of inflation is:
“a net expansion of money supply and credit” , while deflation is the opposite.
In this perspective, the Brazilian inflation of 6,2% (projected yearend inflation) is a real inflation; the credit expansion is there and the Brazilian central bank is cooling it off by crunching the credit supply with higher interest rates .
Still, over the last years of growth, credit has remained much crunched in Brazil, the country still has the highest real interest rate in the world, after Turkey. And this is a good thing. This in sharp contrast the South African credit glut of the last decade. And this is where Brazil and South Africa diverge, a lot. The real interest rate (Money market interest rate – inflation) remains relatively stable in Brazil. In South Africa the real interest rate is increasing, rapidly. Which means that the deflation hurricanes are hitting the South African borders. In South Africa, as in the US, the weak South African Rand and US dollar have been masking deflation, this in sharp contract with Brazil, where the Real has been one (if not the) best performing currency of the last years, even at the moment of writing this article.
Everyone has been screaming ‘peak oil’ and ‘bond bubbles’ in South Africa, Europe and the US, while missing the more important point of the deflationary forces of foreclosures, bankruptcies and massive write downs in credits.
Exaggerating? You wish, quoting Standard Bank in South Africa -dated end June-:
"Lower house prices are expected as the credit crunch starts to have an effect, according to South Africa's Standard Bank. In 2005 South Africa was one of the fastest growing property markets in the world. But now analysts believe recent overvaluation means it cannot go unaffected by global economic conditions. We anticipate a large decline in demand for residential property as we enter a period of national house price deflation which we see as a correction in house prices to more plausible levels" , a spokesman said .
I have been writing since September 2007 on this upcoming financial change, Q4 2007 was the first quarter decline of asset backed securities in the US. Since then more than 225 billion US$ went from the asset sheets into the loan tables of US banks.
And guess what, this massive contraction hasn’t stopped yet, we now have a year-on-year decline curve and I don’t expect to see this change any soon. This means that the credit crunch is not coming to an end either.
Today in South Africa, lenders are paying well above market rates to lend money. Most South African banks are offering 250 basis points or more above treasury rates. On a percentage basis, this is an enormous spread. And expect this spread to widen further. In a credit crunch, junk yields should rise, and they are (in SA, the US and starting in EU); in a credit crunch lending standards will tighten, and they are. In a credit crunch lenders will say not to almost everyone and they are (certainly in SA). Expect the South African bank to do another rate hike this august, which will bring the SA prime interest rate above 16%. When you read this excellent article on the 3,5 Income versus property price (hat tip, Vincent), you understand that this next rate hike will kick start a true deflationary spiral effect on SA real estate prices. The deflationary spiral in SA (and Europe) is only starting, Q3 2009 is the moment to go in and buy. Until then: hold in to your Money Market accounts or rent out your apartments/houses. In Europe the renting road can be bumpy though. Look to Belgium: the politicians are well aware of the flood of people who will be turning to the rental market and the lobby machine to make sure rental prices remain contained is already white hot .
Why would Brazil be any different, you ask? I’ve written extensively on the macro economical differences of Brazil. Never forget the country in itself is a huge internal market, in contrast to South Africa. Just read this excellent Reuters article of last weekend on Brazilian millionaires . True, a commodity crash would impact Brazil. Yet, today only 16% of the GDP of the country depends of exports.
But all this of a lesser importance compared to the fact that Brazil only has a real estate financing of 2% of its GDP.
In Belgium and the US, this figure is today more than 70% of the GDP and in South Africa the figure must be also well above 50%.
This is where Brazil differs from South Africa, Europe and the US: the country knows what ‘peak credit’ is, whereas in Europe, the US and South Africa we have lived in an insane ‘leveraged world’ during the last decades and this world is now coming to an end. Don’t think this is just another cyclical crisis we are having; this is ‘peak credit’, worse than ‘peak oil’. This is why a real estate crisis is far less plausible in Brazil, only a tiny amount of the GDP of the country has been based on ‘leveraged real estate’ which means that a contraction of the money supply would not result in a deflation.
The uncertainty factor of Brazil is of a different kind: all the above leads to the Brazilian Real becoming so strong that the Brazilian government might decide to devaluate the currency and for example peg it to a basket of Asian currencies. Anyway, the effect would never be of such a magnitude of the 40% devaluation of the South African Rand against the Euro since February 2006. If you foresee, you can act. -
Jun 14 2008
I don't need to write on the dramatic problems South African's Eskom has providing the country with electricity, that tune has been song countless times before . The country's electricity supply is depending for 90% on... coal. And the dramatic side of the story is that Eskom announced last week that it's coal supply only in it's power stations only accounts for 20 days now (it's winter in South Africa and these months are the peak usage months). Not a susprise that the word is out the load shedding will soon resume .
I noticed myself for the first time a dramatic situation was upcoming when I flew into South Africa in July 2007, the news on Eskom's supply problems was already out in some sources. But many waved my worries away, "Eskom had plans" and would soon control everything again. I couldn't see any concrete signs of new production plans or a vision on energy sourcing. The last year many wild speculations have been out. Some said this was the chance for South Africa to build a 'new green energy supply system'. The reality was and is clear: a massive shift to nuclear backed by some alternative energy sourcing is the only way out of this nightmare.
The government finally has take a decission: it will start a massive nuclear roll-out plan, with in between 24-30 HTR generation4 nuclear reactors. You read that right: 24 to 30 ! Brazil has 2 reactors and after a year of struggling started to build a third and Belgium, not a rooky when it comes to nuclear energy has 7 reactors.
So, South Africa is placing all its bets on sourcing its energy from Generation4 nuclear reactors . A first test reactor would be build in 2010 in Koeberg, 35 miles west from Cape Town and the first commercial plant would be 'commissioned in 2014'.
Now, you must know that these type 4 reactors are still in an experimental phase and every expert in the field will tell you that a commercial model before 2020 is highly unlikeable to become real .
Conclusion: Eskom's way out of the current problems is ... a set of theoretical nuclear reactor designs currently being researched?
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Mar 25 2008
We're currently managing projects in 4 countries on 3 continents. I won't go into details, the website of WillPower Group will reveal more later this spring. We've been working hard on the reporting structures the last years; not in the least the budgettary and cashflow side. What's still lacking though is an idea on the amount of manhours spend on each project. We are now thinking of implementing an efficient timetracking system.
We've tried Harvest for a while, but it is too complex because it is based on a typical agency structure where personnel has to input ours and one central person has to sign those hours off before clients are billed. In our case, the reporting facet is more important. We've tried Fourteen Dayz today and were happily surprised. Yet, the pricing structure is somewhat odd, for our needs we would have to pay 99 US$ per month.
And then we stumbled on Tick , which integrates smoothly into our Basecamp. Anybody who has second thoughts on the matter before we sign up?
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