In the news today

HA commentary

Demand-side management is best done by adjusting absolute prices.  Higher prices fulfill the important function of calling forth new supply, which in turn lowers prices again.  This policy will only make SA’s electricity shortages more severe as the market cannot function and attention is diverted from the real problem at hand: government control and mismanagement of the electricity sector.  

A side note: as we go into a double-dip in 2011,  the demand-side will be managed without the help of government.

Firms face electricity fines

Jun 08 2010 07:51 Jan de Lange

Pretoria – A reduction in electricity demand is going to be enforced as legislation “with teeth” when government’s Integrated Resource Plan (IRP) is finalised.

Nelisiwe Magubane, the newly appointed director-general of energy said that in the short term the country’s electricity problem could be solved only by reduced electricity consumption, also known as demand-side management.

This was certainly part of the process of setting up the IRP, she said. Her department was busy negotiating agreements with various industries, such as the mining industry, on savings targets.

For instance, agreement still had to be reached with the mining industry as to whether the saving would be 7% or 10%, depending on the type of mine involved.

This was the only way to get quick results in terms of energy efficiency and demand-side management, Magubane continued.

Analysts predict that at current economic growth rates electricity shortages will again confront the country next year.

Demand would have to be reduced before one could feel comfortable about the reserve margin, Magubane said.

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HA commentary

Weak credit and money supply is bullish for the ZAR, negative for GDP, expect CPI inflation to continue lower.

The South African consumer: Dead or alive

Felicity Duncan*|07 June 2010 23:21

PHILADELPHIA – After a spate of fairly strong numbers over recent weeks, last week’s economic news turned more negative, indicating that things may yet go wrong for the local economy, the global recovery and the Fifa World Cup notwithstanding.

In particular, there was evidence that the much-hoped-for recovery in domestic demand is not going to happen, which could pose a serious obstacle to a genuine, general economic recovery. 

In this respect, the really depressing piece of news was the announcement that credit growth shrank by 0.9% year-on-year in April, a much worse number than the 0.4% decline that economists had predicted. This fall in private sector credit expansion is a powerful indicator that consumers are still hesitant to borrow, despite the many interest rate cuts which have brought rates to their lowest level in over 30 years. What’s more, mortgage credit – a key indicator of the outlook for house prices – expanded by just 0.1%. This is a miniscule increase, and suggests that housing prices will improve only very slowly, which will in turn make consumers even more hesitant to borrow in a vicious negative circle.

Consumers’ reluctance to take on debt, even for the purchase of long-term assets like houses, is probably linked to rising unemployment and the destruction of wealth that the 2007/8 collapses in asset prices caused, and it bodes ill for the economy. Without a recovery in domestic consumption, demand, and spending, the South African economy is likely to remain hidebound. If consumers don’t start spending more, companies won’t expand production and hire new workers, and corporate profits won’t be able to sustain the improvements they’ve seen in recent months.

Adding fuel to this speculation about the corporate outlook, the South African Chamber of Commerce and Industry’s (SACCI) monthly Business Confidence Index, which measures how confident businesses are about their performance in the near future, declined for the first time in several months in May (see table).

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HA commentary

A bit lame, but hey, not much grounds for argument.  With shocking demographics corporates will need to continue moving from the West to emerging markets that have abundance of labour and to avoid heavier taxation.   Strict labour laws will see SA lose out to other African countries.

SA member of new economic club

Jun 08 2010 08:48 Maarten Mittner

Johannesburg – Just when the world is getting used to the concept of Bric countries, the future apparently increasingly belongs to the Civets countries.

This is the view of HSBC group CEO Michael Geoghegan.

Speaking recently in Hong Kong, Geoghegan said that this year emerging countries could grow at three times the rate of developed countries.

They were the real drivers of the global economic recovery, he said

According to Geoghegan, the Civets countries refer to Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.

The name also denotes civet cats. Civets are particularly nimble, adaptable and resourceful in catching their prey.

Any enterprise with global ambitions should be active in these markets now.

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HA commentary

Don’t say we didn’t warn about this. http://www.humanaction.co.za/2010/02/the-fifa-2010-bubble/ This is a perfect example of overinvestment.  We’re all poorer because of it as resources were sucked into a B&B boom that was unnecessary.  We will enjoy the cheap accomodation on our travels around the country, however, but homeowners will not be loving the sunk capital and loss-making investments.

FIFA ‘lied’ about bed needs

Jun 8, 2010 15:45  Leani Wessels

Johannesburg – FIFA’s claims last year that host cities were short of around 50 000 beds each for the upcoming FIFA World Cup tournament were misleading, and caused private home owners to waste money on renovations, estate agents said on Tuesday.

According to some of the estate agencies that were responsible for property rentals to foreign visitors during the tournament, only a fraction of the rooms that was said would be needed for the promised visitors have been let out.

“The perception that was fed to us by Match and FIFA was totally wrong,” said Sherril Baard, founder of 2010 Property Rentals. “We kept being told that every area was 50 000 beds short.”

According to Baard only 40% of their properties were rented out to visitors, attained by a very realistic pricing strategy.

FIFA’s accommodation agent, Match, relinquished more than 450 000 of the bed nights it initially reserved for local hotels and guest houses this year.

“Initially I think FIFA created a hype through the expectation that half a million tourist will be coming to SA,” said Seeff Properties chairperson Samuel Seeff. “The global financial crisis and the airlines pushing their prices up also frightened people away.”

According to Seeff, only 10% of the properties on the group’s books were leased out.

TPN, the property credit bureau, reported on Tuesday home owners lost between R30 000 and R50 000 on renovations to their properties which they will not recoup.

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 HA commentary

Money printing should also get a mention but it doesn’t. 

Gold hits record highs

08 June 2010 13:07

LONDON (Reuters) – Gold hit a record dollar high above $1,250 an ounce and new peaks in other currencies on Tuesday as concern over Europe’s economic outlook lifted risk aversion, reversing early gains for the euro and stock markets.

Concern grew over prospects for a European economic recovery after ratings agency Fitch warned the UK faced a “formidable” challenge in its plan to cut government borrowing.

Spot gold rose as high as $1,251.50 an ounce, and was at $1,247.45 an ounce at 0956 GMT against $1,238.05 late on Monday. U.S. gold futures for August delivery hit a record $1,254.50 and was later up $9.20 at $1,250 an ounce.

The precious metal is benefiting from fears the euro zone’s sovereign debt crisis may spread, weighing on global economic recovery, analysts said.

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HA commentary

Physical demand is dominating the paper, or ETF market. 

Haven-seeking Europeans buy physical gold

Author: Dorothy Kosich
Posted: Monday , 07 Jun 2010

The Perth Mint has doubled capacity, while the Rand Refinery has experienced its highest sales in 25 years, all due to European investors seeking a haven in gold.

RENO, NV – The European debt crisis spurred physical gold sales on two continents this past week, as the latest U.S. Mint gold bullion coin went on sale at the open price of US$1,510.

Production of South African’s Krugerrand gold coins soared by 50% to 30,000 ounces a week, the Rand Refinery said.

The Perth Mint in Australia said European buyers have accounted for 69% of new gold purchases.

In an interview with Reuters, Debra Thomson, the Rand Refinery treasurer, said, “Basically the sovereign debt crisis in Europe is behind this. There is a lot of demand especially from Germany; people are looking for gold.”

Meanwhile the Perth Mint in Australia reported gold sales to Europe have soared. In an interview with Bloomberg News, Ron Currie, sales and marketing director for the Perth Mint, said European buyers accounted for 69% of gold-coin purchases last month compared to 51% a year ago.

“As soon as it was announced that the European Commission was bailing out Greece, the German population decided they’d better hedge their euros by buying precious metals,” he added. “We had stock before this blip in the market, then it all went.”

Controlled by the Western Australian government, the Perth Mint had doubled capacity in this past 18 months.

U.S. MINT INTRODUCES 2010 AMERICAN BUFFALO

In the meantime, the collector’s version of the American Buffalo bullion coin went on sale this past week at an opening price of $1,510.

The bullion version of the coin was released April 29th and has sold 135,000 one-ounce coins so far.

As of Sunday, the U.S. Mint reported 542,000 ounces in gold bullion sales, including 20,500 ounces sold since June 1st.

The 2010 American Buffalo Gold Proof Coin can be ordered directly from the U.S. Mint.

Sales of this year’s proof coin occurred much earlier than last year when the 2009 Proof Gold Buffalo was not offered for sale until October 29, 2009. Within five months, last year’s proof coin was sold out with a total of 49,388 coins.

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