Slasher's coffee beans

Jozi, Jozi. Who wants to be Tito Mboweni? Who wants to be part of the MPC? Folks might know who you are on the MPC, but there is at least a bit of anonymity. With the governor, he is the face of the MPC and the Reserve Bank and often all the decisions are placed on him. Session end and near the lows of the day the Jozi all share index closed at 22521, up a mere 80 points, it was looking much better at midday, 150 points better at that stage.

With the MPC releasing the results of their findings today one would guess that if there was anyone sitting on half a percent Tuesday, perhaps the ugly GDP numbers would push them to one percent. Still, inflation remains sticky, it is not coming down as fast as some might have hoped, higher energy and food prices are not helping matters.

Often folks have said in the local context that inflation targeting has crimped growth, but I think both are equally important, because of our high unemployment rate, there are many that inflation is felt by most by the poor. As the poor have no debt or savings, prices are more important. I think that in the South African context that is changing fast, there is a huge emerging middle class that ultimately will be responsible for job creation in the future. And this is where cheaper money makes a big difference.

Standard Bank releasing commentary from the chief Jacko Maree from the AGM that will be held today. Got that, Jacko is going to talk later in the day, the commentary released so that you don’t need to go if you don’t want to. The current operating environment is tough, very tough, with a third of the year past us, we get an idea of what the numbers are to April so far.

In Standard Banks case they can see that both personal and business banking headline earnings to be 18 percent lower, corporate and investment banking earnings much better, up 4 percent. A big increase in impairments is felt in both divisions. An extract from the speech tells you what you need to know for the rest of the year: “Given the trend established in the first four months, it is unlikely that last year’s normalised headline earnings per share will be achieved”.

Last year that number, normalised headline earnings grew 8 percent from 2007 to 14.15 billion Rands. If Standard Bank don’t expect to achieve that, the what is the right price for the stock right now? I would suspect that the markets would be expecting that this sort of result would be in the pipeline. As ever, matters could improve quite quickly. For the time being, matters are looking very ropey.

The big story overnight is the rising cost of debt in the US. As folks get a little more adventurous, they are starting to sell off US debt. At one stage you could just not get enough of this, running at US government debt, because it was the only thing that you could trust.

And talking things that you could trust, I saw that Goldman Sachs stock price was the for first time above the level of September 13. Why is that date important? Because the next trading day after that was when the fellows at Lehman Brothers had to go out of their normal line of business, the middle of September and that week specifically was the one week where we were staring at a credit ice age. That week. It must be the most dramatic in at least two decades.

Right, but back to that big story, the worry that is starting to emerge now is that with the surge in government bond yields could mean that corporate’s could find the going a little more tough with their own debt issuances. Hang on a second here, is there not a feeling that US and UK government debt is not the best quality anyhow?

But, there you go, the yields on the longer dated US debt surged last night, the 30 year bond is now yielding 4.651 percent, the ten year note 3.738 percent with the shorter five year note yielding 2.439 percent. Hardly anything to get awfully excited about, but at the end of December, 2008, when risk tolerances were about as low as you could get, the ten year note was yielding as low as 2.064 percent. You get the drift.

At the same time, and this is quite ironic, Jeff Immelt, the chief of General Electric, said hang on a second here, capital markets have improved dramatically. The worst is over he says and he is starting to see the green shoots that Bernanke called a number of weeks ago. So whilst the worry of higher yields remain on government issued debt and what that might mean for corporate debt issuances. I suspect that whilst folks still feel a little nervous, they will buy US debt. Because the yields might just be too juicy to ignore.

The president of the US has also seen his pay package made public, that is just the way that it goes, Bloomberg gave quite a nice breakdown. Free accommodation, security, entertainment, healthcare, travel (including limo), a personal chef. A salary of 400 thousand Dollars, plus an expense account of 50 thousand Dollars. For what is the expense account I wonder? His trip to the Bahamas and his stay at the Westin there? I doubt that.

There is talk of a super regulator being setup in the US, someone to regulate all the banks, rather than being regulated by the likes of FDIC, the Fed and Treasury, who all have separate roles to play. Good luck with that folks, too many regulators over time mostly came about because of a previous crisis.

New York, New York. Yech. With GM on the way out of the most famous index of them all (perhaps Citi can hit the streets too), plus the aforementioned rates rising spooking equity markets. And that I think was the catalyst for the sellers to make their move. Sell at the end of May and then buy back at the begging of June, at the risk of seeing your assets pruned. Silly sayings.

Session end the Dow closed down 173 points to 8300 points, the broader market S&P 500 lost 17 and a quarter points to 893 with the nerds of NASDAQ down 19 points to 1731. The aforementioned ten year yield surged 5.37 percent, yowsers. The Dollar actually gained momentum relative to the Euro.

The oil price is trading lower at 62.86 Dollars per barrel, the gold price is lower at 947 Dollars per fine ounce. The copper price is at 2.09 Dollars per pound. The platinum price is at 1127 Dollars per fine ounce. The currency is much stronger, I suspect in anticipation of a larger than expected cut in rates. Currently 8.17 to the US Dollar, 11.33 to the Euro and 13.02 to the Pound.

Asia well off the lows, in Hong Kong the market up over five percent. Aussie down 1.1 percent. US futures are flat. The fellows over in Europe are expected to sell off around one percent, I would think that we would open quite soft here.

Best Wishes

Sasha Naryshkine

sasha@vestact.com

011 447 8790