Tuesday, January 20, 2009

Knott-Craig's outlook for 2009

Another interesting article written by Alan Knott-Craig (MD iBurst) - to his employees ....

Hi guys, Why am I writing this email? Because I'm getting the impression there are some depressed people walking around. So let's recap:
At the beginning of the year people were panicking about the oil price, inflation, electricity and economic recession. Of those big 4 concerns, 3 have taken care of themselves.

Oil is now below $40 a barrel, almost one Quarter of the price of 4 months ago inflation is not such big deal because oil is cheap nowadays so food & all other costs are falling and .. we haven't had any crazy power outages since February (the Eskom saga is a complete mystery to me - The NEWSPAPERS said it would last 4 years??)

What about the Recession? Well, as it turns out, that was something that deserved panic. Especially if your name is Dick and you run a New York investment bank... Fortunately we don't have any Dick's at iBurst.

After the merry-go-round of bad news at the beginning of the year, capped by the xenophobic attacks it's been quite surreal to watch the "u-turn" executed by those heading for the exit door! It's a bit like watching naïve tourists run into the sea off Camp's Bay, scream in pain, and then race back onto the beach. The water looks so nice.. but don't go in there unless you're an Eskimo! Suddenly foreign shores aren't as attractive when there are no jobs, no credit, and no sunshine so people who left are returning to tell those who haven't left not to go.

Just to put a couple of Financial things in perspective, here is some info on the year-to-date performance of world stock markets (as of 10 Nov):

Iceland -89%
China -64%
Russia -64%
India -48%
Hong Kong -46%
Brazil -40%
Japan -40%
USA -36%
Australia -35%
UK -32%
New Zealand -29%
South Africa -26% ..SA is not so bad is it?

I'd rather be here than in Iceland?? !!

Sunny SA is certainly not immune to the global economic crisis. Our companies are suffering too, which means fewer bonuses and more retrenchments (always a winning recipe for unhappiness). How long will it last? Who knows, but brace yourselves for a tough 2009. The good news is that after every tough time comes good times, so at least we all have something to look forward to!

What is the silver lining for SA? Our interest rates are still high, but will decrease soon to ease the burden on your back pocket. The UK and USA do not have that luxury, their interests rates are already too low to cut further and it hasn't helped them at all yet!

What else? "Mad Bob" can't last forever. When he heads off into the sunset there will be an absolute bonanza of investment and aid flooding into Zimbabwe, and a large chunk of that windfall will be via sunny SA... oh happy days. Who said there were no plusses to having a failed state as a neighbour?

What else? Anyone noticed the cranes everywhere you look? Seen the Gautrain progress? I went down to CT 2 weeks ago, and virtually the entire highway is under construction. Durban has a new Stadium; a bigger harbour AND a new Airport all finishing in the next 18months The unintended consequence of the government procrastination on infrastructure investment over the past 10 years is that now that it's finally underway - just in time to prop up our economy! Gotta love those bureaucrats.

What else? The Soccer World Cup is coming. If we get it right we'll be the hottest spot on the planet - and we'll have a real shout for hosting the Olympics in about 2020.

But don't crack open the champagne just yet, we still have our fair share of challenges. Your average Yank may be swapping his house for a trailer, but at least he's not worried about being shot in the head on the way to his next job interview. If any of you have a relative or friend in the government, please pass on this message, "Crime is out of control and most of our schools and hospitals are in disarray." Don't for a second fool yourself that we can ignore these structural problems and live the rest of our lives in blissful ignorance. We must constantly remind the politicians to do their jobs, but we cannot absolve ourselves of our responsibility to make individual contributions.

It is our business to make this land a success. Report crime, pick up litter, give to the needy, create jobs, look after the children, practice safe sex, drink filter coffee. We've all got a responsibility to make the magic happen, otherwise you'll just end up lying in bed in 50 years time, looking back and saying "What if?"

The time of opportunity is upon us, now it's up to us to seize the day. I've said it before, I'll say it again: Life is not about waiting for storms to pass, it's about learning to dance in the rain.

Looking forward to dancing in 2009
__________________
Peter Carruthers
Your Humble Servant at Warrior Central

www.businesswarriors.co.za

Friday, January 16, 2009

What the market will do in 2009

What do we know about the year ahead?

- Economists are in agreement that inflation is under control and that we will see interest rates drop steadily during 2009. One may differ on the pace at which interest rates will come down, but what is certain is the downward trend.

- The petrol price is on a downward slide and given the recession being experienced by most of the largest economies of the world, demand for fuel will remain low, hence prices should remain low.

- Recent reports indicate that economists are "cautiously optimistic" about the South African economy for 2009. Growth of about a 2% average over the year is projected with a gradual improvement into the second half of the year.

There are four key factors which affect the property market and prices


1. Interest rates – the downward trend is positive.

2. Affordability – buyers will reap the benefits of reduced mortgage payments and lower petrol prices. The growth spiral in food prices also seems to have slowed down.

3. Economic growth – this factor creates jobs and affords people the opportunity to earn income. Whilst the predictions do not indicate that we will see the average 5% growth experienced over the past three years, we are still in positive territory, unlike the economies in the USA and Europe. It is also my view that the preparation for the 2010 World Cup Football extravaganza has assisted in ensuring continued growth in our economy.

4. Sentiment – plays a major role in whether sellers and buyers will venture into the property market and one certainly gets a sense that, after the battering consumers took in 2008, thoughts will be much more positive. The main beneficiaries of dropping prices in 2009 will be the consumer.

What about house prices?

Property prices are determined by demand and supply.

Early in 2008 we experienced a supply surplus i.e. too many homes on the market with too few buyers. This situation was reflected in the significant increase in the length of time a property was on the market before being sold.

Many potential sellers have taken their properties off the market and those that needed to sell have dropped their asking price. In our trading area we have experienced market values drop by as much as 20% depending on the area.

We find ourselves in a situation in January 2009 where the demand/supply ratio is changing. The supply of properties on the market has reduced and our view is that improved sentiment, lower house prices and improved buyer affordability will cause previously wary buyers to enter the market, thus increasing demand. It is also pertinent to note that property developers have also reduced the amount of new stock they introduce to the market for sale.

The one tempering factor here is that South African banks have tightened their lending criteria and in most applications for a mortgage loan, a buyer will need at least a 10% deposit. This can be a significant amount of money but sellers will have the comfort that they are dealing with a qualified and serious buyer.

What does this mean for property prices? A reduction in supply of homes for sale and a steadily increasing demand as buyers come back into the market will result in price stabilisation. It is our view that house prices may have bottomed but we will not see any serious movement up or down over 2009.

Serious sellers and buyers will find the right price between them with the assistance of a good real estate agent.

Just as the local economists are cautiously optimistic about the growth in the economy, we are confident that we will see a steady recovery in the property market over 2009. One must not expect big change within the first quarter but buyers and sellers will enter the market spurred by improved confidence and the knowledge that the property market will continue to be a viable investment avenue within the context of Southern Africa.

Bargain properties for sale














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Clients will look at offers below the listed price. Properties are for sale for prices well below the market value.

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Wednesday, January 14, 2009

Market expects big rate cut

http://www.fin24.com/articles/default/display_article.aspx?ArticleId=2452060

Johannesburg - South Africa's money market is expecting 300 basis points worth of rate cuts in the current loosening cycle, which would take the repo rate to 9% and reach levels last seen in December 2006. The first cut of 50 basis points came in December last year, with the repo at 12% prior to that decision.

For consumers this would translate into a more palatable 12.5% overdraft rate from a current 15%.

Rates were first hiked in June 2006 to 7.50%, with the total tightening cycle amounting to 500 basis points until December 12 last year.

The repo rose as high as 13.5% in September 2002, before receding to 7% in April 2005, with the current tightening cycle then beginning in June 2006.

"A lot can influence this, but including December, I would say there will be at least 300 basis points as inflation comes down from January to March and growth comes down substantially. There will be room," a senior money market dealer told I-Net Bridge.

According to today's data, the 12-month negotiable certificate of deposit (NCD) has weakened just a little from levels seen late last year, but at a rate of 10.000% is seen "close to the top" ahead of the February rates meeting. On December 22, this one-year rate was at 9.700%, but had reached to a worst of 10.025% in the interim period as well.

The short end of the money market is unchanged at 11.350% from the level seen in late December.

"The short end should come down following a 50 basis point cut and there may be a bit of discounting into the lead-up to the meeting," said the dealer.

While consumer inflation in November was reported at a slightly worse-than-expected 12.1%, the new methodology from February and the drying up of demand is expected to push inflation down quicker than expected. Added to this is that the country's growth numbers are expected to be a lot lower, a fact currently being reflected by manufacturing growth at a concerning ?12% on a seasonally adjusted and annualised basis - the worst in over ten years.

The combination of these two factors - low inflation and low growth - should see to the cuts to come.

South Africa's Monetary Policy Committee decides on interest rates again on February 12.

- I-Net Bridge