I am getting used to the fact that I shall never be a billionaire. I am not happy about it. I've spent years in my attempt to be a millionaire and I'm sure I have earned more than that in my life. Nonetheless I do own a parcel of manuscriptus, a few elderly motoring vehicles, about 6500 increasingly useless books now that Google has made it into the American multiverse, but absolutely no millions.
I've also now discovered that to be a millionaire is no longer such a big deal.
A man I know told me the other day that he had to take one hundred and sixteen million dollars in cash with him on a journey to a place called Bulawayo-place of kings, I'm told-and that was just to pay for hotel accommodation, he had to take his own food and water as the hotels couldn't supply these things. I was stunned. I didn't think any information coming out of that benighted country could still move me but I was incontrovertibly stunned.
On the other hand another person I know works at a larney hotel in a place called Dubai -a place of Sheiks, I understand. The most expensive room in the place runs at twenty three thousand dollars a night. Food and drink is not supplied [water is available] although they are all available in exchange for additional money.
Notwithstanding the common word dollars, we understand that about one hundred thousand dollars from the place of kings would buy one dollar used in the place of sheiks so a room at the larney hotel could well require one to be a trillionaire whatever that is-
And here I am unable to accumulate a simple million.
Which brings me to the point of all this. We are coming up to interest rate debate time again and issues are being raised about inflation and inflationary trends. [ For offshore readers {OR}, inflation refers to the rate at which your assets lose value even while you believe them to be gaining value-I think]
The Americans [Firmians] with all their debt have almost no inflation-A millionaire there [and there are more than ten million apparently] is still worth something. Here -well, one reads of lotto winners blowing a million in an afternoon on a few rounds of drinks, and with pondoks in the townships selling these days for R200,000, a million wont buy much of a house anymore-And that's inflation, because the economy hasn't really grown to any great shakes-toddling more like it and you should be steaming to get that much inflation; and at the moment we are just beginning to get up a head of steam and now success anxiety is setting in again.
Our leaders tell us inflation is a tamed beast [assuming we continue to pretend that the 'core' inflation we stopped reporting some years ago has gone away when we know it hasn't.] Nonetheless even someone as relatively uncharitable as myself would grudgingly admit that it is much harder to use the 'buy now before prices rise' sales closer than it was only a few years ago, indicating far less infklation than we were used to.
Still, compared to Zimbabwe with its 1000 plus % inflation we are a trouble free zone and we should continue to bite the bullet for a while longer. We caught a wave at the right moment in the the great surf competition of existence, for a change, and our economy is generating interesting momentum and it would be good for us to run it hard and push the limits gently.
To begin raising interest rates, no matter how tempting the data seems will signal the onset of bad times just before an election.
Bad news before and election is not usually sensible, notwithstanding that it is most unlikely to have a negative impact on the ruling party's chances. They are having a wonderful time lately riding roughshod over the wishes of the undershod Povo in places with exotic names like Matatiele [sic], Khutsong and Soshenguve [sic] and other less pronounable no places.
It is almost inconceivable that this ruling party should suffer any form of setback at the polls, nonetheless the unexpected outcome of the Palestinian election should be a weakish indicator not to rock the boat too heavily before the schmucks go out to vote lest they see through the bullshit long enough to remember where they shouldn't put their crosses.
The inconvenience of having to bribe possibly thousand of itinerant politicians to cross the floor in September could well outweigh the spurious benefits gained from any rates hike.
There is though a disturbing indicator which merits thought before I conclude this anti-rates hike rant. [try saying that quickly]You'll know from previous blogs on this subject that my opinion is that the rates differential between us and 'them' should be narrowing, to reduce the volumes of hot money in our system. This is especially while we are basking in the multiplier effect of all that loot from Barclays ABSA [ and before the money stream inevitably starts to go negative.]
This large 'traditional' gap between our rates and those of our global associates: competitors, suppliers, and customers was important once; however its continuance is a drag on our own internal development and may be contributing to a process of de-industrialisation. It also indicates fear of something.
Now, with regard to that disturbing indicator. Last week Nova published a curious article with accompanying graph table from one of those plethoras of international ratings agencies that abound these days.
According to this Particular one we [SA] have one of the lowest rates of citizen involvement in 'own businesses' in the world. Some ninety four percent of SA's economically active population work for a wage of some sort and are hence not in charge of their own lives. Not only that but the percentage of the population opting for some entrepreneurial activity is declining. In other words we are inexorably moving towards ninety-seven, ninety-eight percent wage earners.
These two startling pieces of information simply seem to fly in the face of all this business like lickety split stuff that's been going on around us for a few years: more snazzy cars, malls opening almost weekly and everybody out there shopping till they drop. Surely all these people are making fat in their own businesses because salaries haven't exactly gone through the moon other than for the newly advantaged elites who've cornered a market through BEE ing well greased.
One is also aware that there has been a rise in the number of operating businesses regularly reported by the Statistician General [SG] which although some of the SG's numbers crunched out wrongly lately also does seem to accord with visible objective reality.
Then to add complexity to this information the Nova article went on to state that we have the world's near highest rate of new business failures.
And in addition the article suggested [fourthly] that an abnormally high percentage of new business start ups [ in SA compared to the world trend] were born more out of desperation, than through any true appraisal of a felt market need.
For instance you are retrenched because you are the wrong colour and start a business in desperation. You find that you cannot sell 'your product' to any other legally constituted business organisation because of their 'rules'. These are that your business be owned by a newly advantaged BEE utiful person. You can sell to individuals but you cannot ever grow. You crash out into bankruptcy, alcoholism and quite possibly an emerging 'poor light' person problem that will dwarf that of the nineteen thirties and form the basis for the criminal gangs of 2020.
Given the huge volumes of money allegedly floating about to fund new business ventures, plus the eyeball popping evidence of rising numbers of fat cats drawn from the newly advantaged sectors of the population and the fact that the economy is generally steaming ahead, and one is faced with an apparent paradox, viz a viz the Nova article. How can we have this business boom if fewer and fewer new businesses are coming into existence? Surely this rating agency has got it wrong? And having decided that I went back to sleep, and had a nightmare.
What if they are right-what if huge numbers of potential new business entrants are not starting their own ventures but are 'buying' into existing businesses as a consequence of State intervention in the form of BEE ownership 'scorecard' requirements. What if they are buying into formerly exclusivist privately held businesses in such vast numbers that the figure for business entrant activity has become distorted and appears nugatory..
Should this be so then by inference this huge business failure rate could well result [in all probability] from retrenched formerly advantaged males using up their severance pay to fund some pathetic take-away fast food business, for instance. This would facilitate a statistically distorted number of desperation start-ups. The article was silent on this.
So what does this mean and why should it affect the rates decision?
The upshot of this is that there may well be a large number of relatively inexperienced 'business owners' who have intentionally acquired key stakes in a larger and larger share of the market, and their decisions in response to a toughening market will inevitably be more anxiety driven than would normally be apparent in a business with a more sanguine management for its size.
That old thing about making hay while the sun shines was real. When markets turn down there are losers, and those who lose battle to get back into the game, especially in a game where what you are selling is colour and grease: just look at our soccer team who had to get as much money as possible up front believing they would never get another chance at heaven [in the form of money]and they were proved right when they crashed out of the Nation's Cup.
People who suddenly acquire wealth need time to adjust to owning wealth that is more than a just a pile of debt instruments, and a little pressure on the rates right now may inadvertently see a larger than anticipated 'margin' take to the hills, because, as our beloved deputy president tells, us a million may not be much anymore [okay 700,000] but when it's translated into mortgages it chews up a great deal of salary. This transforming base in the emerging pool must be nurtured for a while longer so that they can reduce debt through earnings before they have to reduce debt through firing people.
So NiK's opinion therefore is: drop the rates a quarter point, with the option for one last quarter point cut before the fallout arrives from the pending Iranian/Israeli/Palestinian collision that increasingly looms with grim foreboding. There may not be another opportunity for two or three years.
Dropping the rate will squeeze out some marginal hot money speculators, weaken the rand rate slightly and give our exporters some breathing space. The Chinese phenomenon looks likely to expand exponentially, like cyberspace, for a while to come yet, and it brings with it as much disinflationary [deflationary if you prefer] pricing pressure as oil paranoia brings on its price galloping opposite and if it doesn't perhaps we could use a little fiscal adjustment on import duties to bring prices down and scoop it back later through some other instrument.
The debt structure financing the above mentioned 'takeover' change of ownership will remain intact and serviceable for a while longer before the harsh onset of reality drives a potentially larger than anticipated number of businesses to the wall, leaving us more oligopolistically* dominated than we already are.
Loves ya all
[For OR. Oligopolies are markets which are dominated by a handful of players: e.g. Cell phone service providers [in SA] operate in a market 'owned' by only three players, Vodacom, MTN and Cell C. Oligopolies are first cousin to Monopolies and enjoy the same windfall profit characteristics with the frequent appearance of collusive pricing practices.]
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