You're listening to Strictly Business Podcast
with Lindsay Williams.
The JSC has closed its doors for another day,
so it's time for the 5 o'clock shadow.
And as always on a Thursday,
I speak to David Shapiro from SAS and Securities
and Viv Govender from RANS Swiss,
except that this time our associate David Shapiro
is tirelessly and selflessly going on a
fact-finding field trip to the United States of
America.
So he's not available today,
but we look forward to him coming back.
in the next couple of weeks or so.
But Viv Govender is with us,
and he has the stalwart that he is.
And Viv, if I'd have said to you,
25 basis points down,
50 basis points down,
and unchanged,
and you had three central banks to choose from before the
actual decisions,
you had the South African Reserve Bank, the US Federal Reserve,
and the Bank of England,
which ones would you have assigned to those central
banks?
Because I got it completely wrong.
No,
I thought the US was the only one that was going to do the
half percent.
And I knew we couldn't do half because basically,
with regards to like being South Africa, being as small as we are,
being as vulnerable as we are,
you've got to always be cautious because if they were to come into South Africa and
do a
surprise like a half percent or something,
the round would have weakened when we would have seen, you know, inflation,
what is returned to the system, you know what I mean?
Because the weaker round means like all prices, special prices go up,
et cetera, et cetera.
So, yeah,
we can't afford to be as aggressive as the Americans
were.
So I knew that once the Americans cut,
whether it was quarter, whether it was half, we would have to cut a quarter only.
With regards to the Americans,
I was surprised by that.
But I knew that they were the only ones that could do that.
I do think that, you know, what
Chairman Powell did actually may have been
slightly self-defeating just because of the fact that
you saw the stock market end up negative yesterday.
Yes, it's such a weird move, but obviously it's changed,
but we'll come to that in a second.
Why do you think it did that?
I think it was the fear that maybe he sees something that we don't.
I think the fact that he went bigger than he
was supposed to or could have.
I mean, I think it was fluctuating between, you know,
which was more likely, 50 or 25.
And on the last day it was 50 was more likely.
But I think the fact that, you know,
25 would mean such a possible
number.
and he'd gone to 50, meant that the market maybe might have thought, hey,
this must be a bit overdone.
And that might have been what caused things to
come back down again.
But you're right.
I mean, in terms of the overall moment,
it is going to be positive for the stock market.
Nothing else is happening.
The stock market is going to rise when interest rates are cut.
We saw that after
2008, we saw that during COVID,
nothing pretty much moves the stock market like interest rates.
or taxes and taxes only occur once in a while so interest rates are the
the big driver out there and cutting interest rates are going to make the
stock market go up even though there was that little kind of weird movement at
the start if i had been a technical analyst and i
watched the the markets after the
50 basis points cut in the united states last night and
they sort of gently went higher then i turned the television off and i
thought well that's easy it's a nice steady day
but then i looked right at the end and they were slightly
down and if i as i said i've If I'd been a technical analyst,
I would have said that's a reversal pattern,
and that is negative for the short term.
And here we are today, Viv,
all-time record highs on the S&P,
up around about 1.6%,
an extraordinary move to the upside.
Yeah, look,
I think once people got over the initial kind of surprise and whatever,
I think, like I said, lower interest rates,
positive with the stock market.
But actually, as a technical person, I mean,
we have a guy that's like going to this kind of stuff,
and he always says the first move is almost always wrong.
You'll make much more money by going against the first move
than the other way around and disappointing the first move.
So you see this market spike up, just go the other way.
If you see it fall, go the other way.
And usually you'll end up more right than wrong.
And so that's the weird thing with the technical guys.
They do have this kind of like feeding for the way the
market moves that is not quite related to logic,
but more often than not, it's right.
It's the OPEC principle.
If I was an oil trader,
which I am a frustrated oil trader, I would say
okay i'm looking for the opic decision it's going to cut
by two million barrels a day and the market
spikes up i always say well there's a reason that that it's
cutting it's because demand figures their books are looking a little bit
dodgy and it will eventually come down after
after a couple of a couple of days or so so i suppose the same
principles apply i hope your technical analyst makes a
good deal of money for you viv elsewhere not
much going on and we've got it all out the way now i mean there's so
much central bank activity the price of money is
coming down
Inflation in certain jurisdictions is slightly stubborn.
For example, core inflation in the UK is
3.6%,
which is much higher than the 2.2% CPI.
But generally set fair for the last quarter of
this year, I think.
Yes,
I do think that we are seeing core inflation remain sticky both
in the US and in
Europe as well.
And I do think that that is an issue to be concerned about.
We've benefited a lot from the fact that oil prices are as low as they are
right now.
which kind of takes a lot of this thing out of uh you know uh
inflation uh but um
I think that if you just looked at some of these factors out there,
like wage inflation coming through, including in South Africa,
that's really the long-term inflation rate.
It's wage inflation.
All prices go up and down.
You see the commodity prices spike up and come back down again.
But wages never, ever come back down.
If the oil price went from here to 200,
and therefore people had to go and ask for wage increases,
if the oil price was to fall from 200 back to 70,
they are not going to give back that money.
You know what I mean?
And so that is the one thing to be concerned about.
Right.
We've kind of built in some expectations
around inflation over the last several years.
And that's going to be the hardest thing to break from people's minds.
The fact that, yeah,
you've gotten like two to five percent increases over the last three,
four years.
This year you're going to get no increase.
You know, it doesn't quite work in people's minds like that.
It's interesting as well,
because some suppliers of goods in particular,
when there's inflation and when there's supply chain issues,
they're very quick,
almost a little bit too quick to bump up the prices.
of whatever product it is.
But very, very slow to bring them down.
It's the same with interest rates.
Your mortgage rate goes shooting up,
but it doesn't come down quite as quickly, which is,
I don't know if it's profiteering or whatever,
but certainly that seems to be a phenomenon.
Let's have a look at some prices now, Viv,
before we get onto other matters.
Dollar Rand, nice and steady.
It's 1748.
The British pound against the Rand, 23.17.
The Euro Rand is 1946.
The Euro dollar...
1.1130,
not quite as dramatic a reaction as one might
have expected given 50 basis points last night.
As we've been speaking of, British pound against the US dollar,
1.3260.
Gold price is
25.81,
which is $10 higher.
Platinum is up 15 to 9.90 and
Palladium is $17 better at
$1,085 per ounce.
As for the other ones,
the slightly more important ones for the world, that is.
Brent crude oil continues its nice run, $74.46,
up 1.1%, and West Texas, $71.63,
up just over 1%.
Natural gas down a bit.
What else have we got here that's important to South Africa?
Copper price continues to do well, up three-quarters of a percent,
at $4.27 per
pound.
Now then, the aforementioned S&P
500. The December futures.
currently trading just over one and a half percent higher at
5767 the old
high was around about
5730 up until
today and now it's sliced through that very nicely
indeed thank you very much the us
10-year treasury bond let's call it
3.73 percent
and
the south african tenure after the reserve bank cut
rates is just hovering let's call it exactly
nine percent which is
Pretty decent move for the yield to the downside.
What else have we got?
Oh, Bitcoin, yes, of course.
Mustn't forget that one.
Gosh, a big move there.
Nidhi, 6% higher.
62,900 risk
assets.
Very much in play today, Viv.
How do tech stocks,
high-growth tech stocks and AI
stocks react to an interest rate
cut?
Are they as sensitive as other stocks?
Yes, in some ways more so.
Because remember...
If you have lower interest rates,
it means the discount rate for future earnings
goes down.
So if you basically say, I'm going to give you a billion rounds next year,
and the interest rate is at 10,000%,
it's worth a lot less than if
I say give you a billion next year and the interest rate is 1%,
you know what I mean?
Just because of the interest rate discount that comes through because of that.
And the fact that we are seeing
AI stocks are obviously all about future growth.
We're not getting much money right now unless you're Nvidia.
Everybody else is talking about future money.
When interest rates fall,
that future money becomes more value relative to current
values and therefore should be positive for these
companies.
It's not just AI companies or growth companies, it's growth countries as well.
Technically,
you should see emerging markets do better than developed
markets because of lower interest rates as well.
Good.
So the market is stabilized because we've had a couple of
two or three dodgy weeks compared to
the stellar performances that we've become used to.
But they have settled down now and people are
regaining their confidence?
i i don't know what stabilization means i mean nvidia is up like five
percent today
yeah this is the i remember the the i was i would
bet you five percent in nvidia is worth more than
everything but a hundred companies in the world you know what i mean yeah you're
looking like a uh you know you're talking like a huge amount of
market capitalization that has been added to your venture
yeah yeah yeah and look at it like tesla is up six
percent today you know In fact,
I'm doing an AI presentation in a few hours.
I'm just going to see if my assistant can actually help me with this and
rebalance it because it's going to look a lot better right now than it did when
we first did the thing, okay?
But yeah,
it's amazing just how strong some of these AI
companies are looking at the moment just because, like I said,
they're going to benefit more than anyone else because of the fact that
they are going to benefit from the fact that we are seeing these
companies which are going to have growth in the future, hopefully,
you know,
having those growth being less discounted than it is currently.
Very good.
Yeah, that is a big move, 6% for Tesla.
And more importantly to me, anyway,
the NVIDIA move of 5%.
And who knows what the next few hours will bring.
So good luck with it.
Keep on changing your allocation and everything
for your presentation.
A quick look at South Africa, because I know we've both got a dash.
Bytes Technology.
These prices may be slightly out of date,
but Bytes up 8.6%.
Impala Platinum, 5.7% higher.
DRD Gold, another digger, up 5.25%.
And Anglo-American Platinum, to complete the three of the top five,
Anglo-American Platinum up 5%.
This was 5.15 just over a week
ago, Anglo-Platinum.
Now, 596
Rand per share.
It's a really big move to the upside.
As soon as Anglo-American announced that corporate activity,
I mean, I said to a commentator, I said,
surely this looks like capitulation.
Surely this is a buying opportunity.
And for once in my life, I was right.
It's bargain hunting, I suppose.
But anyway.
In a short-term move, yeah, it makes sense.
But, I mean, the problem I see with these platinum producers is,
what's the future?
You know, you're going to have these short-term balances up,
but the future looks so terrible for them.
It's like all their factors that are supposed
to help them or whatever are working against them.
So,
it would be negative about platinum going forward in South Africa, unfortunately.
Yeah, I think a lot of people are.
I mean, it's a long way to go to the
2250.
a ramp a share for anglo-american platinum a
long long way yeah it's got to go up for
four times almost downside alpha min down three and a half
lighthouse capital down two and a half rem grow
down 2.2 british american tobacco
one and three quarters percent in the red and aeci
down one and two thirds percent if you did have to
invest in south africa while i get the indices uh
having had the initial
A sabre rattling from the South African Reserve Bank,
in other words,
cutting rates and maybe three or four in the next six
months or so.
Is there any particular sector that you think will benefit?
Financials and retailers may be the obvious
ones.
Yeah, I think maybe it's on the miners as well.
Look, I do think that if we are getting our house in order,
and it seems that we are, the GNU,
despite the very low expectations going into it,
seems to be working a lot better than people have been thinking.
And if we can get Translate working, get the ports working.
The impact of companies that are exporting commodities should be positive
because we saw Kumba being affected by the fact
that it could not get stuff out of the plot quickly enough and therefore to
reduce production.
We saw electricity
obviously production under a
threat in South Africa because of load shedding.
And yes,
the Reserve Bank government was correct in mentioning the fact that we are seeing
high strides in electricity being way above inflation.
But I'd rather have electricity
like 40% more expensive,
but guaranteed as opposed to current prices.
I mean,
like they have power going out every day or every
second day.
If those things can be solved, and like I said, it comes with a cost.
Yeah, SA Inc looks very attractive.
One might even look at some SA property that looks interesting at
the moment.
So if the current trend with the GNU continues,
there's a lot of stuff in South Africa that just has fallen so far behind that
they look
incredibly cheap.
I mean, banks...
unbelievably cheap compared to international benchmarks.
I mean,
if you look at some stock which keeps on coming across my
desk, it's called ABSA,
and they give me the P-E ratio,
both current and forward,
and the dividend yield.
It really is something that you don't see overseas when it comes to the
financial services sector.
Oh, yeah, no.
What's it like?
It's still the dividend yield is still above the P-E ratio,
despite the fact that this thing is up, I don't know,
in the last, say, year, you know, quite.
not much, it's about 2% this year,
but from the lows of this year it's up, you know,
25% from where it was in April.
And yet we are still seeing, this is from after the election, of course,
we are still seeing, you know, P ratios under 8.
dividend yields almost eight yeah a very compelling argument
even after the rally that you just described from the
lows okay the indices look like
this the financials which we've just been speaking about
actually relative laggards up 0.4 percent
industrials up 1.4 percent the
resources 10 index a 1.7 percent
gainer top 40 1.1 percent higher at
75
703 and they all share the overall index
before the auction i must say but anyway it gives you an idea
1.1% higher as well to
83,652.
Viv Govender is from Rennes, Swiss in Johannesburg,
and that was the 5 o'clock shadow.
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