Scavengers unite!

2011-07-14 00:00

Newspaper headlines such as “More people want to leave the country because of Julius” and “SA’s BRICS partners invest elsewhere in Africa” make Trader Vic – a self-acknowledged scavenger trader – very excited about the new opportunities the media’s fear of Julius Malema is going to create for this unsavoury species of trader over the next year or two. Please note: I said the media, not Julius or the ANC congress in 2012, when a new leader will be picked.

Over the past 17 years the ANC has done very little for scavenger traders like me.

Let me put that differently: the ANC’s stable and sound economic, fiscal and especially monetary policies transformed every wolf-wolf opportunity of the past into a useful profit. That began immediately in 1994, when threats of nationalisation made farm land fairly cheap; 20 years later it’s clear over that time the price of farm land increased much faster than ordinary residential property, which itself made a lot of people rich.

Two other man-made profitable opportunities for scavenger traders are still fresh in our memory. In 1998, at the time of the minor crisis in emerging markets, the rand came under enormous pressure. The Reserve Bank Governor Chris Stals used all of SA’s foreign reserves, to try to bolster the rand’s value on world markets.

By June/July 1998 the bank had to admit defeat when the country’s foreign exchange reserves fell to minus US$25bn and interest rates rose to 25%. Just then, Government announced Tito Mboweni, a socialist, was going to be the Bank’s next Governor. Panic! But what a wonderful feeding opportunity for the scavengers. Perhaps there are still some of my old clients and friends who remember the zero coupon bonds we were offering at R18 000 per R1m at the time. The bonds are currently worth more than R300 000.

Some time in 2001 the world’s foreign exchange speculators decided to take on new Bank Governor Mboweni and started forcing the value of the rand down to US$1/R13. Unlike his predecessors, Mboweni refused to use SA’s scarce forex reserves to protect the rand exchange rate. “Speculate if you like and let the exchange rate go where it will” was more or less his viewpoint. Remember, if the Bank doesn’t want to play along and create opportunities for speculators, there’s not much they can do.

The same Mboweni retired as Governor about two years ago, when SA’s foreign reserves had already climbed to the unprecedented level of more than $40bn and the rand had strengthened to below US$1/R8.

Mboweni’s decision in 2001 not to intervene in the forex market was far more alarming than everything Malema has yet said all put together. So much so public corporations such as SA Airways went and bought its US dollar obligations forward for 12 years. It later cost the taxpayer more than R10bn to set that right. But a few scavengers made use of the opportunity to buy up SAA assets dirt cheap.

Trevor Manuel, later described by former colleague the late Deon Basson, as the best Finance Minister SA has ever had, began his term with the remark: “The markets are amorphous.” I was part of the audience that day and it was interesting to see some overseas traders leaving early so they could hurriedly grab their phones and sell SA Inc short. That was a mistake. In fact, it was an excellent opportunity for traders who exploit others’ fears.

Recently I again had the privilege of listening quietly to a discussion by newspapers’ political commentators on topics such as Malema and the ANC. The discussion was filled with big names and threatening events far above my ability to absorb. Luckily I didn’t have a laptop handy otherwise I may well have sold my small parcel of listed shares.

Back home later, I looked again at the two newspaper headlines quoted above. SA doesn’t necessarily need the BRIC countries. I believe Walmart, the world’s largest retailer, recently acquired a controlling interest in our Massmart. The Reserve Bank’s balance sheet, as well as its monthly foreign exchange statement, shows SA has ample forex reserves and that our Treasury has already had to sterilise around R150bn of surplus money over the past five years.

The cost of that sterilisation and the more than $50bn of foreign reserves we’re now sitting with unnecessarily cost SA’s taxpayers at least R5bn/year. I haven’t yet seen a newspaper headline saying “ANC’s economic success costs taxpayer R5bn/year”.

Keep talking, Malema, so that the media can cry wolf. This scavenger trader is in fact looking for a new opportunity now share prices are so high, the rand so strong and there are no more cheap houses at the sheriff’s auctions.