In the news today, Jun 21

 HA Commentary

While CPI inflation may be slowing down, it is still going up.  Your cost of living will keep going up faster than the CPI, leading to a declining standard of living.

Crisis in car insurance

Jun 20 2010 16:54 / Adri van Zyl

Johannesburg – Drastic steps are required to ensure that motor insurance remains affordable for consumers and that their insurance companies can continue offering motor vehicle cover.

South Africans are paying more for motor insurance here than in any other country and insurance companies have for the past two years or more been showing burgeoning losses in their motor book.

Because many people find the premiums for motor insurance unaffordable, only about 35% of the just over 9.5m vehicles on the roads are insured.

Nevertheless, the number of accident claims received by insurance companies keeps rising and the cost of repairs is extremely high.

The South African Insurance Association (SAIA) has now launched a comprehensive strategy to ensure that affordable and sustainable cover will become available to South Africans in future.

Viviene Pearson, who was appointed head of motor insurance at SAIA in April, says the costs of repair work and the incidence of accidents are soaring and pushing up both insurers and consumers’ costs.

read more

HA Commentary

Government protectionism of select industries like tyres will ensure your cost of living keeps going up, while the quality of goods concomitantly comes down.

Freeman Comment: This is one of the oldest and most pernicious forms of economic coercion and cronyism.  Big companies suck up to the law makers and get them to block imports because the cheaper goods are ‘undermining’ local production.  These companies hire buffoon economists to invent baloney concepts like ‘dumping’.  Did anyone stop for one minute to think that cheaper tyres from China might actually be benefiting the…err…consumer?  After all, that is why we need tyres right…you know, to actually drive on for as little cost as possible?  Government thinks the purpose of companies is to create jobs for their fawning voters.  Wrong.  Companies are there to produce goods and deliver services people need.  So we’re happy to protect a few local tyre manufacturers, but what about the millions of consumers spending unnecessary funds on tyres?   This is income diverted away from buying other goods and services, so all businesses lose out and production of value as a whole is actually less in the economy.  The failure of the state and econo-muppets to see this is because, as Henry Hazlitt said, they do not assess the WHOLE economic impact of their policies on ALL people over the LONG TERM.  So, thanks to some short-sighted busy-bodies, all SA consumers are worse off, 9 tyre importers may go out of business, all other businesses in the economy suffer as funds are unnecessarily sucked in tyre expenses, but a few select and favoured local tyre manufacturers will receive special privilege because their economists baffled some lawmakers and judges with the word ‘dumping’.  I thought the Fascist state was knocked off its perch in 1994?  Funny how tyranny is resurrected in new and disguised forms…

Court rules against cheap Chinese tyres

Jun 20 2010 11:38 / Jeanne-Marié Versluis

Pretoria – On Friday four multinational vehicle tyre manufacturers obtained a court order against the alleged dumping in South Africa of cheap tyres from China.

In the Pretoria High Court Judge Willie Hartzenberg set aside the International Trade Administration Committee (Itac) recommendation to suspend an anti-dumping investigation.

This recommendation was published in the Government Gazette in 2007.

Hartzenberg also set aside the decision by the Minister of Trade and Industry to accept this recommendation.

He further ordered that Itac should complete the anti-dumping investigation within four months.

Bridgestone South Africa, Continental Tyre South Africa, Dunlop Tyres International and Goodyear Tyre and Rubber Holdings joined the South African Tyre Manufacturing Corporation, the representative organisation for South African tyre manufacturers, in submitting the court application.

The application was submitted against 19 respondents, including seven Chinese companies manufacturing tyres and exporting them to South Africa, and nine South African companies that import tyres.

read more

HA Commentary

The full extent of renminbi de-pegging from the US dollar will inevitably be disastrous for the US economy, USD and Treasuries as import prices of all imported goods to the US surge once the market realises the Chinese can’t fund US deficits anymore, leading to a rather strong decline in the US dollar.  This will not be ’mildly positive’ for the ZAR as RMB suggests, but rather extremely bullish.  Don’t forget these guys were calling for an average USD-ZAR exchange rate of 10.30 in 2010 only a year ago. 

What a flexible renminbi means for the rand

John Cairns and Nema Ramkhelawan*|21 June 2010 13:55

John Cairns and Nema Ramkhelawan argue it should be a mild positive.

China’s announcement of a move toward greater currency flexibility Sunday is a mild positive for the rand, given the boost to commodity prices, the reduced risk of a trade spat, its negative implications for the USD and the hope for the rebalancing of the global economy. The biggest influence though is for those corporates exposed to Chinese trade. Much of this is USD-denominated but offers little protection as CNY gains will see USD prices adjusted. Expectations at this stage is that USD/CNY will fall 3% over the next year – a moderate move but one that will probably accelerate over time.

It seems there is no shortage of rand positives, gold prices are at a new record high and risk aversion is dropping off sharply. It’s also interesting that speculators are unwinding EUR/USD short positions quite aggressively. On the basis of evidence in the past few years, this is a good leading indicator of a turn in the market. The EUR already made its strongest gains in more than a year last week.

Reflecting the positives, USD/ZAR is already down in the 7.40s. EUR/ZAR is more stable but on an aggregate trade-weighted basis, the ZAR is the strongest it has been in the post-crisis period. It is no wonder that markets are starting to bet on another rate cut. Local inflation data this week will be key in this regard.

We don’t however think that the ZAR rally will extend that much further. Technically, USD/ZAR7.20/25 will be incredibly difficult to break. Moreover, the European fiscal problems remain and Greek debt spreads continue to escalate. While Spain’s problems are off their worst the markets are still very nervous about the bank stress tests. Most of all, the pace of the global economic recovery looks set to slow in 2H10. Look for evidence of this on Tuesday and Wednesday’s Eurozone data. Thursday’s quarterly bulletin offers some mild risks; we are notably bearish in our call for a 4.3% 1Q10 current account deficit. Note also that an Eskom strike gets closer and closer. Remember that the Eskom problems back in 2008 generated a 20% move weaker in the ZAR. A strike isn’t the same as a shortage and markets generally react less strongly to repeated events but a full blown strike could still push USD/ZAR back to the upper end of its range towards 8.00.

*John Cairns is a currency strategist and Nema Ramkhelawan a currency analyst at BJM

read more

HA Commentary

This is how the dollar-yuan peg works.

“Hot Money” controllable as yuan reform proceeds

 English.news.cn 2010-06-21 08:33:54

BEIJING, June 21 (Xinhuanet) — China will be able to keep inflows of speculative capital under control even if the latest clarifications on its yuan policy trigger any influx of “hot money”, a former central bank adviser has said.

The People’s Bank of China, the central bank, said in a statement on Saturday that it will proceed further with the reform of the yuan exchange rate regime to enhance its rate flexibility. The move has been interpreted as the start of allowing the yuan to rise against the US dollar after it remained stable for 23 months.

On Sunday, the central bank said in a statement that it will maintain a stable exchange rate and there will be no drastic fluctuation in the value of the yuan. There will be no one-off adjustment in the value of the yuan and the fluctuation of its value must be “controllable” to prevent market forces from causing excessive swings, it said.

“The basis for large-scale appreciation of the yuan exchange rate does not exist,” it said.

The statement emphasized the yuan be pegged to a basket of currencies, adding that the US dollar should not be the only gauge for judging the renminbi exchange rate level.

read more

HA Commentary

I would agree with his advice of saving, but saving in unit trusts isn’t ’saving’, it’s ‘investing’.  Saving entails restricting present consumption for future consumption. Channeling your money into unit trusts filters it into capital markets where it is consumed/invested and treated as a present good.  It might seem like semantics, bit its not, the economic impact when aggregated over the entire economy is vast, and is what has gotten the Western world into this massive hole of debt.  The only way to really save is by setting money aside, but our central bank prints so much money every year which erodes the value of those savings, making it nonsensical. 

Steps to financial independence – Wealth Building

Sylvester Kgatla*|18 June 2010 14:43

If nothing else, the current economic climate should be teaching us to save for a rainy day, because these days, it doesn’t just rain but it pours. The number of unemployed persons increased by 145 000 between Q4 2009 and Q1 2010 and with the number of discouraged work seekers also increasing by 153 000, the nation’s unemployment rate rose to 25.2%.

What percentage of that is the youth? More so, what is the youth that is still employed doing to ensure their financial freedom? The answer is simply, not enough! It is estimated that the average economically active South African is living beyond their means, that they are conspicuous spenders. Naturally, this is disheartening when one considers the fact that an individual that retires at the age of 65 on an annual income of R500 000 with a need for 80% of the monthly salary and who lives for another 25 years, will need approximately R8m for a comfortable retirement. In most cases the employer’s pension fund does not reach such an amount!

Very often employees do not accumulate much capital during their careers because they cash it in as often as they change employers, leaving themselves with little long and short term financial security. In order to cover any shortfall in retirement capital, one is left with the options of working longer than originally planned, adjusting lifestyle, or choosing to take more investment risk for greater returns. Truth is, a portion of the youth believes that they will not live to reach retirement age, that one of the many social hazards will catch up to them. What this generation fails to see, is that they have the power to change the world. History should be teaching us that the youth are the architects of the future; just look at how the youth of the 70s influenced the South African landscape.

The youth needs to realise that a nation’s savings helps build infrastructure and finance businesses that create sustainable employment and future income which ultimately grows the economy. By diverting from over-spending to saving and/or investing an extra amount per month, a sizeable nest-egg can be accumulated in a surprisingly short period of time. Investing in the numerous investment vehicles such as unit trusts, offers people the opportunity to receive highly competitive interest rates and/or inflation-beating returns on their savings. And that is the struggle which the youth of today should be fighting: financial freedom.

*Sylvester Kgatla is a unit trust specialist at Absa Investments.

read more

HA Commentary

Do you know Treasury and SARS officials talk about tax revenue ‘targets’ in forums on the budget.  They want to increase tax collections by 18% per year with GDP growing at 3.5 odd percent.  That means you’re gonna pay, boet or sis.  Remember using gold coins like British sovereigns or Krugerrands in exchange for goods and services is perfectly legal, as they are deemed legal tender.  Difference is SARS cannot track this with the “latest technologies at its fingertips” as it can electronic money, not to mention it cannot steal the purchasing power of your Rands from you.  Capital gains on gold coins also aren’t  payable either, as it is legal tender, not an investment.  Take note, “delinquents.”

Sars comes down hard on evaders

Jun 21 2010 10:20

Johannesburg – The SA Revenue Service (Sars) has become much more aggressive about tracking down tax evaders and making them cough up what they owe – plus hefty penalties, an auditing firm said on Monday.

Sars had hundreds of new collectors on its payroll and the latest technology at its fingertips, which meant it was becoming increasingly difficult to evade tax, KPMG said in a statement on Monday.

“[N]ow is a particularly bad time to try your luck, ” Yasmeen Suliman, associate director of tax said.

However, that was just what increasing numbers of business owners and individuals seemed to be doing as the effects of the global economic downturn continued to hit South Africans in the pocket.

Finance Minister Pravin Gordhan had revealed that Sars had collected R598.5bn in the 2009/10 fiscal year – or R26.8bn less than it had the previous year.

“Even more serious for Sars was that this amount was R60.8bn less than it had initially planned to collect.”

Suliman said Sars, anticipating just such a drop-off, had started last August to beef up its collection capability. It had spent “millions” merging its separate systems to make it easier to call up all the relevant information on a taxpayer. It could now use a taxpayer’s ID number to see what for what taxes he or she were registered.

Sars could ascertain the number of properties and cars a taxpayer owned, memberships and directorships in close corporations, companies held and any trusts linked to them.

“This makes the profiling of delinquent taxpayers much easier.”

New laws had been introduced to strengthen Sars’ hand in enforcing compliance. These included monthly penalties for taxpayers with many returns outstanding, and new rules for the remission of interest when VAT was paid late, which meant it was much harder to convince Sars to waive the interest levied.

Sars was identifying and prosecuting delinquent taxpayers more aggressively and was focusing more on high net worth individuals.

“They can often be identified through the media if they have a high public profile, through assets like expensive properties or cars, or through being reported by a suspicious colleague or family member,” Suliman said.

read more

HA Commentary

Tony Twine is spot on.

Moody’s - “SA like Greece” rating panned

BUSINESS DAY ONLINE AND FINANCIAL MAIL Published: 2010/06/07 03:22:35 PM

A report compiled by Annabel Bishop of Investec showed that rating agency Moody’s regarded South Africa as un-sound an economy as Greece – with other agencies S & P, Fitch and R & I rating South Africa as only slightly better.

Reports at the weekend said South Africa was effectively lumped with the so-called PIIGS nations (Greece in particular), but analysts say the basic economic facts paint a different picture.

Greece is rated BBB- by Fitch and R & I, with them quoting South Africa as BBB+ and A- respectively.

S & P regarded Greece as on a level of BB+ with South Africa marginally better on BBB+.

Moody’s rated South Africa on the same level as Greece on A3.

According to these rating agencies, South Africa is only slightly better than Greece and worse than Portugal, Spain, Ireland Italy, the so-called other PIIGS where government debt is dangerously high.

But the reality, according to analysts including Econometrix Chief Economist Tony Twine, is somewhat different.

“Their ratings are incorrect based on the economic fundamentals, South Africa is not in the same boat as Greece. Its unfair lump the country with the PIIGS,” Twine told Business Day Online.

SA recorded a deficit of 6.7% last year but this is still well below Britain’s estimated outcome of -11.5% of GDP, the US’s -11.8%, Japan’s -10.4% and the euro area’s -7.1%.

And SA’s chance of default is extremely low, given that its debt is running at only 36% of GDP and it remains on track to record growth of 2.8% y/y for 2010.

For comparison, Greece is expected to have a debt ratio of 128% of GDP for 2010, Italy 118%, Portugal 85% and Spain 66%.

read more