Digital Edition 2019 | Volume 09 - Amazon S3
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Digital Edition 2019 | Volume 09
THE BEST RESULT POSSIBLE,
BREXIT STILL UNCLEAR, AND
COMPLICITY DILUTION WITH
MAY 8 SO NEAR
Stewart Dando
Investment Specialist | MIFM
Squawk Editor in chief
The best result possible…
“M y prediction? I think they’ll leave
our rating unchanged. I think they’ll
have downgraded SA to junk. Rival
ratings agencies Fitch and S&P both
at the French Ministry of Finance
in the forecast division, responsible
adopt a ‘wait-and-see’ attitude until downgraded SA to sub-investment for projections and analyses of
after elections and reassess the situation grade in 2017, following the cabinet- government finances. In addition to
then. While our challenges are vast and reshuffling antics of Jacob Zuma. focusing on the hard data, she also
complex, I believe Moody’s have seen builds relationships with those within
enough in 2019 to justify a short-term Truth be told, an understanding of her purview. For SA, this means she
reaffirmation on our rating.” Moody’s’ methodology, in contrast to has held regular meetings at the
their peers, would have provided some Treasury, the SA Reserve Bank and
That’s how I ended my Squawk last comfort when anticipating their actions in the Presidency. Following Friday’s
week. Being right didn’t fill me with on Friday. Moody’s methodology announcement, or lack thereof, it might
any pride at all, there was only space indicates that SA’s current Baa3 rating be safe to assume that her interactions
for one reaction: Relief. with our policy makers have
given her a certain measure
In the early hours of of confidence, leading to
Saturday morning our time, her cutting us ‘a little slack’
ratings agency Moody’s at least until after the
chose not to update their elections. The ill-boding
assessment of South Africa’s spectre of Eskom still looms
sovereign credit rating. This large, however.
means our country’s credit
rating remains unchanged So yes, we can all breathe a
at Baa3, clinging to the last welcome, albeit it temporary,
rung of investment grade, sigh of relief. We’ve slipped
with a stable outlook. In a out of the ratings agency’s
short statement, Moody’s noose…for now. The next
listed SA as one of seven scheduled ratings update is
issuers whose ratings were in November. What we do
not updated, without providing any could easily absorb a deterioration in between now and then will determine
reasons. Simply put, this is the best SA’s growth and fiscal metrics well into the economic trajectory of this country
result we could have hoped for. Had 2020. for probably the next decade.
we been downgraded to junk, it would
have meant ejection from the hugely- Then there is the human factor to Let’s get it right, shall we?
significant Citi World Government consider. A senior member of Moody’s
Bond Index, forcing asset managers Africa Sovereign Ratings team, and
to jettison roughly R170 billion’s lead analyst for several Sub-Saharan
worth of our debt. The impact on African sovereigns including SA, is
yields, and perhaps more importantly a slight and quiet Parisian woman
sentiment, would have been horrific. named Lucie Villa. She has worked
Moody’s is the last of the big three at the ratings agency for 11 years
international ratings agencies to not now and previously spent two years
Weekly Squawk - by Stewart Dando
Interesting Stuff
T hird time isn’t a charm, apparently: On Friday,
the UK parliament again voted against UK Prime
crafty tax dodges, perpetrated by the world’s largest
asset managers with help from investment banks.
Minister Theresa May’s Brexit deal, by a majority of Such trades, nicknamed ‘heartbeats,’ are rampant
58 this time (far smaller than the previous defeats). across the $4 trillion U.S. ETF market. Typically, when
This was a third successive defeat, and provides even you sell a stock for more than you paid, you owe tax
less clarity on the trajectory of negotiations for the on the gain, which is standard international practice.
UK’s divorce from the EU. What happens next? Who But thanks to a quirk (read: loophole) in a Nixon-era
knows, but perhaps the graphic below will provide tax law, funds can avoid that tax if they use the stock
some edification, if not clear direction: to pay off a withdrawing fund investor. ‘Heartbeats’
come into play when there isn’t an exiting investor
handy. A fund manager asks a ‘friendly’ bank to create
extra withdrawals by rapidly pumping assets in and
out.
“If the IRS were looking at it, they would say that’s a sham
transaction,” says Peter Kraus, a former chief executive
officer of mutual fund manager AllianceBernstein
Holding LP who now runs Aperture Investors LLC.
And investment bankers wonder why they have such
a bad reputation…
Why isn’t Julius Malema in prison? It’s difficult not
to accept that, if the political will was there, Julius
Malema would be wearing overalls of a different
colour. Law enforcement agencies have a plethora
of cases to choose from, including his firing of live
ammunition in 2018, the alleged corruption stemming
from Limpopo in 2010, the various racially-charged
comments he has been making for years, and his
involvement in the VBS scandal. So why has he been
able to act with such brazen impunity? The answer
lies in his importance in the political landscape of this
country, and the prospects of the EFF in the May 8
elections. It is my belief that those who pull the strings
in the political shadows are waiting to see how the
EFF performs come May 8. If the EFF cross the 10%
threshold, any fresh impetus to prosecute him could
be viewed as purely political (which it most probably
would be). If they underperform, his momentum
would have halted, and attempts to then prosecute
him would surely be more successful (provided he’s
As you can see, pretty much all options are still on the guilty, of course).
table, and the eventual outcome is no clearer that it
was in June 2016 when a disillusioned and ill-informed All of that being said, it could just be as simple as that
British public voted themselves, albeit marginally, into he knows where all of the bodies are buried. In fact,
this mess. it’s probably that.
Wall Street’s ‘dirty little secret’: One day in
September, $3 billion was pumped into an ETF in the
US market by an unidentified trader. Two days later,
that same trader withdrew a similar amount. That’s
peculiar, you might opine. It turns out that it wasn’t a
mistake. Transfusions like these are perfectly legal, yet
Weekly Squawk - by Stewart Dando
Indicators
At the close, or at 06:00 SAST today:
JSE DOLLAR/RAND BRENT CRUDE
56,462.55 POINTS $1/R14,3753 $67.51/BL
CPI/INFLATION
GOLD R186 YIELD REPO 4%
$1,292.38/OZ 8.60% 6.75%
Article Jargon
I n recent years there has been a lot of attention
focused on the costs of investing. Across the
What is an ‘Inverted Yield Curve’?
world, fees have been coming down due to a An inverted yield curve is an interest rate
combination of competition from low-cost environment in which long-term debt
index funds, and pressure from governments instruments have a lower yield than short-term
and regulators. Performance fees have come debt instruments of the same credit quality.
under particular scrutiny. Questions have This type of yield curve is the rarest of the
been raised about both their fairness and their three main curve types and is considered to
complexity. Writing for Moneyweb, Patrick be a predictor of economic recession. A partial
Cairns takes a closer look: inversion occurs when only some of the short-
term Treasuries (five or 10 years) have higher
https://www.moneyweb.co.za/investing/its- yields than 30-year Treasuries. An inverted yield
time-to-rethink-performance-fees/ curve is sometimes referred to as a negative
yield curve.
Source: Investopedia
“ Quote
“Our work towards electoral victory for @MYANC cannot be deterred by fake news, smear,
and gutter journalism of papers such as the @SundayTimesZA. The ANC will soldier on to
a landslide victory. We remain unshaken and undistracted!” - ANC General Secretary
Ace Magashule said in a tweet. This was in response to the publishing of a new book,
Gangster State: Unraveling Ace Magashule’s Web of Capture, written by investigative
“
journalist Pieter-Louis Myburgh, which places him (Magashule) at the ‘head of a well-
organised state-capture network’ in the Free State where he was the premier until
his election as the governing party’s secretary general in December 2017.
...of the Week Weekly Squawk - by Stewart Dando
In Conclusion
Complicity diluted…
R amaphosa started a three-day campaign trail
in Kwazulu-Natal on Friday, once seen as a ‘no-go’
that precisely what broad-based corruption and state
capture created? Only a select few benefiting, while
area given its status as a Zuma stronghold, with an the majority languishes in abject poverty?
exclusive fundraising gala dinner at the Coastlands
Hotel in Umhlanga. You’re diluting the ANC’s complicity here, and
avoiding taking explicit responsibility for your party’s
He began his keynote address at the dinner with failures over the past 25 years. It’s unlike you, and I
the usual rhetoric, reiterating that there was a need can only assume that the proximity of the elections
to restore policy certainty and consistency, root out is informing your words, as opposed to genuine and
corruption in state-owned enterprises, strengthen honest sentiment. While I understand your goal of
law enforcement agencies and affirm the rule of garnering votes, I would caution you not to alienate
law. “We will address monopolies, excessive economic your sensitive supporters on the periphery. Some of
concentration and the growth-inhibiting structure of the us have been able to separate the revolutionary ANC
economy” and “We will do this through a more effective of Nelson Mandela from the corrupt and rotten ANC
competition policy and will open up the economy to of Jacob Zuma. You would do well to aggressively
participation by small and medium enterprises, emerging promote this distinction, and highlight the potential of
co-operatives, and township and village enterprises”. (So the former as opposed to diminishing the destructive
far so good) actions of the latter.
Then came a bold objective: “We have set ourselves the Conflating the past and the present is not a good idea,
target of being in the top 50 countries in the world for and it’s in direct contrast to the ‘new dawn’ you’ve
ease of doing business within 3 years,” he said. (It’s good been promising us.
to have lofty goals, I guess)
Tread carefully, Mr. President.
Then he said something rather interesting.
Ramaphosa said that the ANC government
in 1994 “inherited an economy in crisis”,
saying it was an economy designed to
serve the interests of the few, and to
consign the black majority to poverty,
marginalisation and mass unemployment.
“The state was crippled by massive debt and
large deficits, jobs were scarce and growth
was on the decline. There is broad agreement
among all South Africans that our most
pressing and immediate task is the creation
of employment on a far greater scale than we
have achieved to date.”
Hmmm. One could argue Mr. President,
with much substance, that the economy
you purport to have inherited hasn’t really changed © 2018 - 2019 Zapiro (All Rights Reserved) Originally published in one of these
publications: Daily Maverick, Sunday Times, The Times, Mail and Guardian, IOL, or
then. We’re still an economy in crisis, we still have Sowetan in 2019. Printed/Used with permission. More Zapiro cartoons at www.
zapiro.com The Squawk thanks the following sources of inspiration: Daily Maverick,
massive debt and deficits, and growth and jobs The Economist, Bloomberg, News24, Moneyweb, Financial Times, Investopedia and
remain elusive, even though the majority of the global Anchor Capital.
economy has enjoyed a massive recovery since the
GFC of 2008. And here’s the kicker sir: You say that Until next week, make good decisions, and happy
it was an economy designed to ‘serve the interests of investing.
the few, and to consign the black majority to poverty,
marginalisation and mass unemployment’… But isn’t
“The opinions and views expressed in this newsletter are those of the author and do not necessarily represent those of the attooh! Group or its affiliates. Content stated as fact was fact at the
time of writing. The information in this newsletter is not intended to constitute financial advice as contemplated in the Financial Advisory and Intermediary Services Act”
Weekly Squawk - by Stewart DandoDesigned by:
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