I go away for a few days and find the rand at multi month lows on my return. This has nothing to do with the amount of money I spent in Liverpool, I promise.
Mind you the USD has had a field day against almost all comers over the last few sessions. This surprises me somewhat because, in my opinion, US economic policies are laying the groundwork for future problems.
The one thing that really frightens me is global debt levels – led by the US and China. At some point in the future we are going to pay the price. Trump and his tax cuts are inflating US debt levels to unprecedented stature, and this issue is a real cause for concern.
Things are also not as rosy as they seemed a few weeks ago. Yes, the economy is on a firmer footing, but our SOEs are still an unmitigated disaster. Eskom and SAA are the biggest risks. Eskom simply cannot carry on as a going concern unless they raise tariffs significantly. Or borrow if they can find lenders. SAA continues to bleed cash – lots of it. Do yourself a favour – do an online price check for flights. My recent trip to the UK showed me that SAA is a good 30-40% more expensive than their competitors. This shows us something about the viability of their long-term sustainability plan.
So we have all these risks floating around, yet investors are more concerned with whether the FED will raise rates twice or three times more this year. As we know, structural issues are never a problem until they become one, and then it blows up spectacularly. So in the short term, we have had a proper clean out of long EM positions and the USD has had a decent run. But now that the FED (not that hawkish) has had its say, we may well see EM recover a little bit since recent decline.
Longer term this is becoming a very difficult call. The Ramaphosa rally is long gone and we will have to assess as we go along. My cynical self continues to see orange lights all over the place, some of which may take a long time to play out. But of one thing I’m certain: at some point in the future, we will have to pay the price of global fiscal largesse, and it’s going to hurt.
Speaking of Liverpool – one more hurdle. A little pre warning (and I know it’s premature) but, should we win in Europe, I will make sure that all my readers receive the lyrics (and melody) to “you’ll never walk alone” (feel free to unsubscribe early). For all the abuse I’ve received over the years, I think it’s only fair.
Should we lose, I of course expect further abuse, but that’s ok, I’ve been a Liverpool supporter for many decades, I’m used to coming second.