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A tale of two recoveries – slow and steady in the US

02 July 2014

Last week, US first quarter gross domestic product (GDP) growth was revised downward from -1% to -2.9%. This disappointing number, mostly due to the bad weather and weaker consumer spending, obscured the fact that the American economy’s ‘Great Recession’ ended five years ago in June 2009. The 18-month long recession was the longest and deepest contraction in economic activity since the 43-month long first leg of the Great Depression (1929 to 1933).

Headwinds and tailwinds

23 June 2014

The US equity market has not seen a 10% correction since 2011, leaving many to feel that it is vulnerable to a sell-off. When and how a correction will happen cannot be forecasted with any accuracy, and there are many factors that could cause a sell-off in the short term (for instance an oil price spike if the turmoil in Iraq escalates greatly). Rather than trying to time the market, investors are better off focusing on valuations, having a long-term view and trying to understand the underlying drivers of market performance.

Interest rates and the battle of stagflation

17 June 2014

No central banker, especially one who has inflation targeting as its main objective, ever likes to hear the word stagflation. This is unfortunately the harsh reality currently facing the South African economy. The latest CPI inflation release is above the 6% target limit, and the most recent GDP data has shown that the economy contracted by 0.6% in the first quarter of 2014. This is the worst position for any central banker, as raising interest rates should successfully contain inflation but at the cost of potentially throwing the economy into a recession. On the other hand, by cutting interest rates and stimulating the fragile SA consumer, the South African Reserve Bank (SARB) should succeed in reviving the growth outlook, but at the even greater cost of letting inflation spiral out of control. It should, therefore, come as no surprise that the SARB has decided not to adjust the repo rate at its last two meetings.

National Treasury has reason to fear Friday 13 June

11 June 2014

With two ratings agencies due to announce their reviews of the country’s ratings on Friday, it’s not superstition that will be making those working in the National Treasury nervous.

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The strongest deterrent against FSP compliance missteps is or should be:

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A criminal conviction Debarment Fine or penalty Any of the above can work

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