You're listening to Strictly Business Podcast with Lindsay Williams.
JSC has closed its doors for another day.
So as it's a Wednesday, I speak to Skulk Lowe,
who's a portfolio manager at PSG Wealth Old Oak in Cape Town.
Skulk, we haven't spoken now for two weeks and that's my fault.
But I'll tell you one thing, I'm feeling slightly uneasy about things.
And it's the looming election because there's undoubtedly going to be...
extreme volatility surrounding that event whether it lasts or not I don't know
whether it's good or bad again I don't know depends on the
candidate and also wars wars are starting to get on my nerves now
I mean I sit there watching television and think I'll go to I'll go to have a nice
early night
9 30 10 or something and then I start to get agitated because I see all sorts of
ghastly things going on
soothe my fears please skulk you You came to the wrong place, my friend.
Okay, let's wallow together.
So you share my sentiments, do you?
I definitely, let's put it on the table.
I'm not negative.
I'm, like I say, carefully bullish.
And when I look around, I see markets.
Now, let's just forget about, you know, I want to say today.
Today is slightly down.
Yesterday, a little bit more negative.
But...
When we look at the past, let's go to two and a half months,
things that pop up is things like new all-time highs, 52-week highs,
RAND being stable.
I can go on and on positives locally as well as abroad.
So those things are, I would say,
justifiable because we've now reached a pivotal point where the interest rates are
starting to drop.
decline again, people are feeling more upbeat.
But I'm looking around and seeing the same things that you're seeing.
I'm seeing, you know,
I think the biggest threat to this party we're enjoying
is, I still believe, inflation.
And yes, you've mentioned war, but war to me equals higher inflation.
When I look at...
Immediately when I hear China stimulating, then
I say that equals higher inflation.
When I look at you talking about the U.S.
in elections, but before that, we still got things like port strikes.
That's going to be, I don't know how long that's going to take.
I look at that and I see higher inflation.
So I'm sort of sitting in a position where I say, yeah.
we're going to see lower interest rates, and that's going to be good for growth
assets like equities, also properties.
But don't think this interest rate will move in a straight line,
because if all these things that you just mentioned, and I mentioned,
sort of escalate into something bigger, I don't know,
that might sort of put a stop at this party for now,
and might put...
some of these central bankers in a position where they say, wait a minute,
we're not going to necessarily decline in interest rates every second month, like
everybody's thinking.
We're just maybe going to I don't know what we say in the rugby.
I don't know.
You don't watch rugby.
It's touch, pause, and engage.
I think it might be that type of thing.
Touch, pause, and then they'll engage again.
You're likening the central bank behavior to a scrum.
Is that what you're saying here?
Yeah, it will be a scrum for sure.
It will be a scrum for sure.
No, so I think I answered you a very, very long-winded way.
I think you're 100% right.
The one thing I am expecting for the next month, even two months, is definitely
higher volatility.
High volatility in equity markets, high volatility in currencies for sure.
Well, let's take the
Ukraine-Russia war out of the equation because it's not nice to say.
I'm used to it now.
I'm bored with it.
But it's been a long time.
And it's not having the impact that it did when it was first unleashed on an
unsuspecting world.
As for the Middle East, not so ongoing, and probably only in the early stages of
its impact.
But a couple of economic factors.
Now, you often send some really, really good and well thought out graphs on
LinkedIn.
And you sent one a couple of days ago to do with leading economic indicator in the
United States.
And you said it's been falling now.
for 30 straight months.
What are the implications for that?
And just explain it a bit if you would.
So these, as the name implies, it's leading indicators.
So they take a few economic indicators and they sort of combine it into one
indicator.
And naturally a graph that's moving upward or, you know, improvement in this data,
you know,
is an improvement in the indicator.
And the decline is naturally a weakened environment.
Now, very important, you know, we've seen, you just mentioned it.
30 months in a row.
Soon we'll see if it's going to be 31.
30 months in a row.
The previous time we've seen this type of trajectory, where we see a
30-month-in-a-row drop in these leading indicators, was the world financial
crisis,
which eventually ended up being the world recession.
And I don't want to call it another world recession because...
you know something happened you know a lot of time people tell me oh there was you
know it was a definite event that happened
back then but that's that that's the thing about these indicators and and about black
swans you you you tend to look
back let's
call it 15 years ago 16 years ago and say well it was clear as daylight man oh man i
want to
take everyone back to 2007 and explain to them then that it was clear as daylight
anyway
Be that as it may, the economic environment is definitely declining,
but not to the extent where we're already in a recession.
Because remember,
we went into 2024 and most investment houses were forecasting at least a
minor recession.
That was most of them.
I mean, some of them actually felt that we're going to be in a deeper, let's call
it a hard landing type of recession.
Yeah, well, we're sitting on the 9th of October.
And nobody's really in a proper recession.
So that gives some of these central bankers an opportunity to not be too quick
on the draw.
Let's get inflation under control.
Focus on the geopolitics because, I mean, from an African point of view,
we're still the S in BRICS.
And, you know, there's already two BRICS countries that's now.
in full-blooded war with their neighbours.
So I think we just need to stay calm now, get these wars out of the way,
and I think then 2025 and 2026 could be very good.
Okay.
Now, you've mentioned two things.
Inflation, which everyone says, oh, it's under control, don't worry about it,
interest rates are going to come down.
It's almost as though they've said, I can look forward to the last three months of
2024, two and a half months now.
and everything's going to be fine i can enjoy my christmas break but you've
sounded a warning there and you've also talked
about maybe some kind of uh recession now if you put those two together that is
stagflation
oh yeah in other words stagnation in the economies and inflation which is terrible
and if i look at the crb index
chart which i've just pulled up in front of me on september the 10th of this year
The CRB index,
a basket of commodities heavily skewed towards energy, i.e.
crude oil, was down an index level of 315.
It touched just below 350 just two days ago.
So 315 to 350, it's 35 points.
It went up more than 10% in a very short space of time.
That's inflation.
The CRB index is inflation or a good component of it.
So you've got your leading...
economic indicators in the United States coming down for close to three years.
You've got inflation going up in a very short space of time by 10% or more.
So, yeah, maybe you've got a point there, Scott.
No, you've made me even more nervous.
I told you.
You came to the wrong place if you thought I'm going to talk you down this ledge.
No, it's you know, there's a graph that I also now, this might be my favorite graph.
And I know a lot of my colleagues always laugh at me when I say this is
This is your favorite graph because eventually I end up showing them 45
graphs,
and I think most of them I refer to as my favorite graph.
But this might be my favorite graph because it's one of those things that's
just fun to watch.
It doesn't really give you insight unless you're really a firm believer that history
always repeats itself.
But you referred to the stagflation period,
which was pretty much that period between 1978 and 1983.
Now, This is where, you know, for the listeners out there, and I've got a graph.
It's also on my Twitter feed and LinkedIn feed.
Maybe I should just share it again.
But it's one of those graphs where we look at inflation.
And I'm not going to go into the historics, what happened back then, what
created the inflation.
But in essence, very similar, we had inflation that rocked the world,
specifically the U.S.
On that stage, the Fed rate was right about the… let's call it 2% level,
and they had to adjust this to combat this, but they didn't go quick enough.
And they eventually, as interest rates actually did,
had the effect, inflation started to retrace, very similar graph.
And then what we've seen, they were too quick on the draw, really worried about
unemployment rate,
worried about the… going into a recession, and they were very quick to reduce
interest rates again.
And then we had that second trance of inflation.
And it wasn't just interest rates.
It was commodities.
It was a few things.
But in essence, everything just happened too quickly, and we had that second trance
of inflation.
Very high inflation, went into a proper recession, high unemployment rate, as
Lindsay now referred to,
stagflation.
But the second trance… of that inflation was way more aggressive,
way higher than the first one.
And they eventually ended up, they needed to take the Fed, listen to this,
from 2% originally to about 18% to rectify this in the U.S.
Yeah, that was crazy times.
And the fact that the U.S.
actually pulled through that time was just mind-boggling.
Now, here's my favorite part.
Not that, not that.
the story itself.
For the past, let's call it two years, I've been running the current inflation
trajectory, and I'm talking about the US,
on exactly the same graph of the late 70s, early
1980s. And they're running like a railroad track.
And they look like exactly the same graph.
And it's just mind boggling.
I thought I'll stop it eventually when they actually uncouple, decouple.
But they haven't done that yet.
And if that graph is anything to go by,
we should have an inflation that bottoms out in the next two to three months, maybe
four.
And then we should see, you know, somewhere in the next, let's call it two
to three months, we should see inflation start,
you know, showing its teeth again.
Now, you just mentioned it.
I mean, I look around me and last night somebody asked me, what a great.
day, at least the Brent oil price is back at $78. Man, it's beautiful.
5% drop yesterday.
I went like, yes, but remember,
that Brent oil price a month ago was trading below $70.
So,
that's already still 10% higher than what it was trading a
month ago.
Look at your other commodities, some of your...
coppers coppers are way way higher already so so yes i do agree with you you're going
to have this stimulus um
people were disappointed yesterday in in china again not i don't know what that
committee is called but
they eventually thought that they're going to bring out the bazooka as well and they
ah they just did some infrastructure stimulus and they did some
some um uh uh uh what do you call it um fiscal stimulus but in essence not a big
one
and people were disappointed but if people realize the more china is going to
stimulate yes it's going to be good for south africa in terms of
commodity commodity producing but it's not going to be good for inflation um and
ultimately not going to be good for interest rates
okay we've got another couple of things as well which i need to mention talking about
recession or a stagnant economy
germany germany the powerhouse of europe no longer i can't get my page up for a
moment because there's
This is the Europe malaise that I'm going to refer to now.
Suddenly the internet's gone down, and I'm in the Netherlands.
But the German economy has slowed and is slowing and going into recession.
I think it actually might be technically going into the second year of recession,
which is bad for Europe.
And Europe is a massive, massive trading block, as we all know.
And then we've got China as well.
Now, what happened after the Golden Week of China, which was their annual holiday,
was to me very disturbing.
I mean, we had this massive day to the upside, a few days to the upside for
China-linked stocks.
and then suddenly when people came back from holiday they thought yes let's buy
now and then they suddenly said wait a second there's no one backing up
this buying and they sold i think the hang saying was down
10 yesterday wasn't it or monday oh yeah yeah but it was it was pretty much up 25
in
september so yeah it's it's it's highly volatile um and you're right i mean
um that's that's What we refer to this, let's call it volatility,
because everyone expected
China to do these type of stimulus late last year, beginning this year.
And so every month we discuss Chinese economic data and refer to it as, wow,
that was disappointing.
Wow, that was disappointing.
And they don't do the stimulus.
Well, the U.S. announced their first interest rate cut.
And boom, there goes China and announced that stimulus.
Is it a coincidence?
I don't know.
I mean, it's just way too coincidental for China to literally the same time the U.S.
do the rate cut.
They not only cut their rates themselves, they're pumping a lot of money into the
economy as stimulus.
I mean, that was interesting.
And, yeah, I think as we get these type of news, good news will… drive this market,
you know,
when I said market to the Chinese market.
And, you know, disappointing news will have the effect that we've seen yesterday.
I've got no doubt, no doubt that we can see volatility.
Yes, we've got, I think, US inflation coming out tomorrow, Skalk.
And that's a carefully watched number.
People saying it's going to remain at just over 3%, 3.2%.
I think the number has been projected.
But we shall see.
Okay, so we've got a backdrop of potential volatility.
The US election, we don't want to talk about because I really don't want to know
what your views are on who's going to win.
In case you say the wrong person, then I'll dislike you intensely.
But you know what I mean.
It's going to be huge.
Yeah, it's going to be huge.
It is.
So let's have a look at some markets here, if we can.
Dollar Rand is my internet's back up, by the way.
It wasn't the Dutch system.
It was Lindsay Williams'dodgy finger.
1764 dollar round.
British pound against the round is 2308.
Euro rand is 1932.
Euro dollar 109.55.
What else we got here?
Gold price, it's got a bit quiet, hasn't it?
It's holding above 2600, but I thought for all the world it was going to be going
through 2700 a couple of
weeks ago, but not to be.
2615, which is essentially unchanged on the day.
The platinum price.
9.60, which is down 19, and the palladium price is up 37 to 1,040.
Now, the all-important oil price.
It's actually had a good day for consumers of oil today because Brent crude oil is,
gosh, it was down over 2%,
now down only 0.9%, $76.53, and West Texas,
$73.06 per barrel, which is down 0.7%.
Right, stock markets now.
The S&P 500 futures, 58.22.
That's December futures up 0.4%.
That's quite nice.
That must be coming close to all-time record highs.
US 10-year, 4.05, just below, 4.0460.
And the South African 10-year, hmm.
Last time we spoke, it was floating with going below 9%.
Now 9.37%.
And Bitcoin is 60, let's call it 62,000.
down just around about 1.4%.
What about local markets since we spoke, Skull?
Commodities had a bit of a start after the China news, but then sort of fizzled out
again, didn't they?
Yeah, massive, massive retracement yesterday.
I mean, the likes of, I don't know the figures of yesterday, but I remember
Anglo-American were down
5.1-something percent.
And we had a lot of the big, big commodity counters that was under pressure.
I see the resource index sort of keeping its nose in the green,
but not really recovering some of the major, major losses we've seen yesterday.
I think the big one that stood out for me today was Mondi.
Mondi announced the acquisition.
They just mentioned that they're going to acquire Schumacher packaging Western
Europe assets.
It's going to be a deal of 634 million euros, so quite a sizable.
I just mentioned it's going to add 1 billion square meters of corrugated
packaging for the operation.
It doesn't have real figures.
financials on Schumacher.
But I just know the market really loves it because as the announcement came out,
they went positive and they went seriously into positive.
Mondi, you know, closing the day up close to 5%.
So that was a really good one.
Very good, yeah.
On that note, leaderboard on my screen anyway, PHP Prop, nearly 9% higher.
Mondi PLC, 4.2% to the good.
Karoo up 3%.
10%.
Mass, a property company, of course, 2.4% higher.
Impala Platinum up nearly 2%.
On the downside, Highprop down nearly 6%.
Is that an ex-Div story, Skull?
Yes.
Yes, it is.
I do.
Okay.
Sassl down 4.6%.
First Rand down 3.2%.
Sogo Sun 2.75% in the red.
And Momentum Metropolitan down 2.5%. So a mixed board there,
Skull.
What do you think?
Do you think...
The resurgence in optimism for South Africa has had its initial sort of
knee-jerk reaction to the upside,
government and national unity load shedding and all those things we're so
familiar with.
And now we have to say, right, is it justified?
Can we take the next leg up?
I always say, the proof of the pudding is in the eating.
I mean, I've had a lot of politicians lately that we've seen that came out and
said they're
going to do this and they're going to do that.
The idea is to grow the South African economy by 2% per annum for the next two
years.
And now it's actually delivering on these promises.
The GNU is really, when I look at it,
it does seem like it's starting to produce some positive outcomes.
But we need to see some solid outcomes.
Because remember, 2% per annum is all fine.
I mean, it's still not good enough for a country like South Africa, not even close.
I mean, four years in a row, we've had pretty much zero growth.
When you look at the population growth over the last two years, you know, the
population growth has been over 2% per annum.
And that's, you know, according to the census, that's the people for the red
account.
So I would think, you know, we would most probably be at a population growth close
to 3%.
If we're not growing our economy by 2% to 3% per annum.
we're wasting our time so we need to now not not produce those those that those
growths um
so do i think it's it's it's it's gonna happen yes i do think i think there's
gonna be improvements um yeah we're sitting
i don't wanna even count the days anymore but i mean we've we've lost touch you know
when
last we had load shedding and and we know that uh governor he
mentioned last year that
Bloat shedding is costing us anything between 1.5% and 2% per annum in terms of
economic growth.
So that's what we should be looking at.
We should now be adding whatever growth forecast we had.
And what I'm using, I'm using IMF.
IMF with the latest one.
Now, I know they will increase it, but the latest one that they had in July,
they kept us at a growth rate of 0.9% in 2024.
1.1%, I think, for 2025.
And when you look at the World Bank, World Bank is somewhat more optimistic.
They've had us at 1.2%. Now,
if we don't have load shedding and the SR Reserve Bank has
anything to go by, then we should be growing this year by one and a half, at
least one and a half percent.
Let's hope so, yeah.
And from little acorns to giant oaks grow or something.
Old oaks.
There we go.
Okay, give us the closing indices if you would, Scott.
So as mentioned earlier, the JSE didn't have a positive day again,
but not to the extent yesterday.
Down 154 points close to date, 85,337.
That is down 0.18% resources.
Just in the green, eight basis point positive, while industrials were a quarter
of a percentage in the green.
Financial struggle today.
I think it was a bit of a rant story there.
But.
Yeah, financials did struggle.
They were down 0.86%,
while the SIP property index also down 0.16%.
When we look at the value traded, not a very, very active day.
I mean, we didn't reach the previous two days.
We've surpassed the 20 billion mark today.
We struggled 17.5 billion Rand traded on the JSE.
And if we look at, currently look at the US, US as it currently stands, the S&P 500
is a half a percent in the...
The green Dow Jones, 63 basis points, and the Nasdaq also half a percent positive
for today.
Very good, Scott.
Lovely to talk to you after a two-week break.
Thanks very much for your time, even though you've more or less guaranteed I'll
have another sleepless night and no nails in the morning.
But yes, your points are well made.
Scott Lowe is a portfolio manager at PSG Wealth Old Oak in Cape Town, and that was
the 5 o'clock shadow.
The views and opinions expressed in these podcasts are those of Lindsay Williams.
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