Fed Minutes: A Summarised Version.

Monetary authorities spent their most recent policy meeting agreeing that the economy was improving and no longer needed stimulus tools such as asset purchases, though concerns persisted that inflation expectations may be falling, the minutes of the Federal Reserve’s October policy meeting released last Wednesday revealed.

At its October monetary policy meeting, the Fed left its benchmark interest rate unchanged at 0.00-0.25% and said it was closing its monthly bond-buying program in a move widely expected by markets.

While the economy is improving, some monetary authorities want to be sure recovery remains sustained before raising interest rates, which is seen taking place sometime in 2015, with a few voting members expressing concerns that inflationary pressures remain soft.

“Participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the Committee’s 2 percent goal in coming years, although a few expressed concern that inflation might persist below the Committee’s objective for quite some time,” the minutes read.

“Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly.”


Deton Chronicle


Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it.  If it keeps moving, regulate it. And if it stops moving, subsidize it.

      –Ronald Reagan (1986)   


Good morning from a very soggy Johannesburg – it is either feast or famine when it comes to rain. Just 2 weeks ago we were all lamenting at the heat and how desperately we needed rain. Now we have it in droves. Sort of reminds me of the stock market where a few weeks ago we were all looking at doom and gloom, and now we have the US markets hitting new highs and a decent recovery at home as well! Makes our lives very interesting to say the least!   


The last 3 months activity around the globe:




























































So apart from the Rand/$ and the gold price, looking a little better than it did a month ago, but no predictions at this stage! 

The last few days has shown that… 

The US labour market continues to show improving strength. Initial jobless claims came in at 278K, the lowest level since the Global Financial Crises and the second lowest level in 35 years. This is a strong indication that could signal stronger wage growth which will increase inflation, currently below the Fed’s 2% target. On the political front, the midterm elections have favoured the Republicans by a colossal margin, which has fed through to a stronger tone in the dollar.

Over in Europe, the ECB governing council (GC) left the policy rates and longer term refinancing operations (TLTRO) programmes unchanged as was expected. The ECB stated that these programmes are expected to increase the balance sheet to EUR3trn, which was supported unanimously. As expected the BOE decided to leave the Bank Rate and its Asset Purchase Facility target unchanged.

Back in South Africa, Moody’s downgraded South Africa’s long-term foreign currency debt rating to Baa2 from Baa1 and changed the outlook on the rating to Stable from Negative. As a result the rand fell victim to stronger US employment data and the Moody’s downgrade which saw the currency move from 11 to 11.30 to the dollar. Adding further to the currency woes is South Africa’s vulnerable and tight electricity supply situation which gave rise to further load shedding risks. Someone needs to step up the plate and start taking some firm moves to fix the economy!


The recent market activity brings me to the tale of the Pied Piper of Hamelin, who I am sure everyone remembers?  It tells the story of a piper who in the year 1284, through the seduction of his pipe-playing, lured away the plague of rats that the town of Hamelin had been experiencing.   After getting rid of the rats, the townspeople of Hamelin reneged on the deal to pay the Piper, and so, in revenge he used the melodic sounds of his pipe to lure away the children of the town, who were never seen again. Only 3 children escaped, and that was because there was a blind kid, a deaf kid and a lame kid.  

The moral of this story is that sometimes markets too can seduce us into following it into desolation, and we become so captivated that we lose all sense of where we are, and where we are going, and why we were invested in the first place.  So in a funny sort of way, it pays to be blind, deaf or lame when it comes to investing in equities – By that I mean to be immune to the effects of the tunes that the markets play for us.    

This, of course, is why some of the most successful investors on the planet are those who consider themselves to be contrarians.  They don’t listen to the market, for that is the herd, and the herd are like the little children of Hamelin.  The good investor is one who doesn’t base their investment premise on what the market tune is, but choose their own way.  

What this really points us towards, of course, is to know where you are going and to not be distracted.  It means having a plan and sticking to it.  If the markets trebled in a year, and you were only half invested, do not believe that the following year will bring the same and then go all-in.  If you do, it will be only because you have listened to the music of the markets too much.  It’s time then to tone down that treble and go back to the base. 


Out of the mouths of babes: 

A little boy opened the big family Bible. He was fascinated as he fingered through the old pages. Suddenly, something fell out of the Bible. He picked up the object and looked at it. What he saw was an old leaf that had been pressed in between the pages. 

‘Mama, look what I found,’ the boy called out.

‘What have you got there, dear?’

With astonishment in the young boy’s voice, he answered, ‘I think it’s Adam’s underwear!’ 

The European Crisis and Prospects for Recovery


Since the financial crisis of 2008, GDP growth in Europe has been dismal. This could be attributed to the appreciation of the Euro exchange rate, which has strengthened 10% on an effective basis between August 2012 and March 2014. This has led to a loss in competitiveness in export markets as well as business confidence with a resulting negative knock-on effect on manufacturing activity which continues to gradually decline as evidenced by the persistently poor PMI numbers coming out of the Eurozone countries. Effects of the latter phenomenon have been more pronounced in countries that have been slow to take up and implement structural reforms namely, Spain and Germany. To add to the Eurozone woes, rising political tensions in Ukraine are adversely affecting sentiment on the continent.

It has not been all bad though, Europe can still point out to continually and gradually declining bond yields; stabilizing unemployment which in turn has given consumers new found confidence to increase consumption; signs of renewed housing market transactions and rising construction activity as some of the factors that gives the continent and investors alike hope for an improved economic outlook.

Economic recovery: Scenarios

Investment: as driver of growth

In light of the above it is plausible that going forward, external demand from relatively thriving economies like the US and Emerging Markets like the BRIC countries supported by a weaker Euro will form the basis of economic growth in Europe which will be driven by investments.

Consumer spending: as driver of growth

With consumer confidence on the rise as unemployment abates, there is a high degree of probability that consumption will follow suit. To further support consumer spending in order for it to have material effect on economic growth, authorities could relax lending conditions.

Avoiding deflation

It is encouraging to note that in terms of rhetoric and policy action there has been a shift in emphasis from austerity measures which comprises of freezing, capping and or cutting expenditure to accommodative monetary policy- best exemplified by the recently instituted bond buying program by the ECB also known as quantitative easing-meaning that deflation is likely to be avoided. However, given the continuing substantial underutilization of resources in the labour market, the Eurozone may still struggle with very low levels of inflation for long time to come.


As I intimidated earlier, risks to growth forecasts are balanced. Downside risks include impact of US and the European Union (EU) sanctions on the Russian economy and Russia’s retaliatory measures. Upside risks encompass stronger-than-expected earnings growth in Germany and a positive shock to exports boosted by the weaker euro and a stronger world demand.