The Zuma Rand or Poodle   

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It just goes to show that apparently anyone can be finance minister, just that you know. Swimming naked has suddenly acquired a new meaning as SA got a new finance minister ready to do his master’s bidding, which is to approve trillion Rand nuclear deals and other assorted schemes favouring dubious supporters. By Cees Bruggemans of Bruggemans Associates, Consulting Economists.


SA can ready itself for unrestrained tax increases, and state spending projects that will drain its citizens for decades to come as favoured presidential schemes are nodded through.

Global markets will not be amused by this turn of events, which spells junk status ere long, seriously rerating SA in their estimation. As global capital rejigs its portfolio weighing, the SA bond market, JSE equity market & SA Rand will be the main barometers of such judicious reconfiguring.

It makes any Rand forecasting a standard joke, for the infinity symbol is the only appropriate one to use.

The dam wall has given way. Stand back while the world sits in judgement. It will take a while to embody this in new values, for which reason putting any numbers to paper at this early stage is premature.

But accept that we will pay more for our borrowing henceforth, that the Rand will be a good deal weaker, that inflation will bulge higher, that SARB may act earlier & more than expected on interest rates in 2016 if it has any appetite left after this, that taxes will rise, all of it a lot more & earlier than would otherwise have been the case.

Clearly, events yesterday have overtaken all else. So whatever else I had written, waiting in the pipeline to be published – forget it. We are in a new era.

We may call the New Year, in good Chinese tradition which will become the new norm for us, no doubt, the Year of the Zuma Poodle. A more appropriate moniker for the national currency I cannot imagine.

So, the Poodle is expected to quickly reach for 20:$ and 21:€ in 2016. It should imply a CPI inflation surge closer to 7%. What SARB will do to neutralise such surging remains to be seen. For if Treasury can fall, so can others.

It isn’t obvious where the Poodle will settle. It will take time. Remember 2001. Then we surged to double fair value. And took two years getting there. Today fair Poodle value sits in the 9-10:$ region (with upward potential as our inflation bulges). Take your own cue from these benchmarks.

Happy exporters. An unexpected Zuma Xmas gift. Unhappy household motorists. Your petrol/diesel costs (and imported food for the poor) are about to seriously rise even before the new finance minister gets to you in the New Year. Seriously depressing for real spending, output & income in the economy. And for business confidence as all plans get rejigged. Also for labour peace as inflation compensation demands will be upped.

One can hear the presidential chuckling as these events unfold.

 

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