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Sunday Times STLive By Jeremy Thomas, 2011-11-27

It tastes sour, but it may be a sweet spot

Jeremy Thomas
Image: Sunday Times

There are several delightfully destructive scenarios being sketched by pundits as the Western world (and Japan) slouches its way to oblivion.

The first is that the US Federal Reserve will be the one to swagger in to Europe with a slop-bucket of several hundred billions' worth of quantitative-easing dollars. Since the European Central Bank is not (officially) allowed to purchase sovereign bonds, and cash-flush China and the Brics bloc have said "no thanks", who else is left but good old bankrupt Uncle Sam?

Naturally that amount of "new" dollars gushing into the sewer would devalue the greenback - but that suits the US just fine. The weaker the US currency, the richer its export-dependent companies stand to become.

And, so long as the eurozone stays on the back foot, begging-bowl out, US treasury bonds will remain the developed world's preferred safe haven - even though yields are so low they're little better than an overnight Plusplan savings account.

Yes, it all means more debt, bigger deficits and no resolution to the crisis, but when has that ever stopped the fatheads nominally in charge of steering the global economy?

The second fantastically ugly scenario concerns gold. China and Russia are getting quite sick and tired of the shenanigans in the US and Europe, and there is intriguing speculation afoot that both giants are salting away large chunks of bullion to diversify away from having to hold "fiat" paper like dollars and euros.

Roll on a new global super-currency, linked to the one commodity that throughout history has symbolised old-fashioned "value" ...

Jolly good stuff. Read more at zerohedge.com, and be sure to click on the readers' comments - there is a slightly scary fin de siecle tone to them, which we would all do well to take more seriously given the truly ghastly happenings up north.

Could it really be that bad? Oh yes. [Cold shiver]

Outside of the eurozone and US, the developing world just keeps rolling on - despite the best efforts of certain macro analysts to terrify us into thinking commodity prices are about to fall off a cliff.

I heartily recommend a visit to the site page88.co.za. Once there, do a search for "Raptor" and read his take. It will certainly change your mind if you think the (South) African mining industry faces imminent catastrophe.

On the contrary, we are in an amazingly sweet spot.

Raptor runs a big logistics line out of Africa and has the ear of Europe's most celebrated analysts. (Of course on page88 he's anonymous.)

Here's an "executive summary":

  • Metals prices are falling, but at nowhere near the panic levels reached in 2008;
  • Orders for chrome, copper and manganese are at record levels. Shipped volumes are soaring and suppliers struggle to keep up with demand;
  • Finance may be drying up in Europe, but Chinese banks are "very aggressive" - either relaxing their lending criteria or taking equity positions in troubled operations; and
  • The weakening rand is translating into stupendously bigger export profits.

A missive from Raptor, who depends on fast road traffic, in September recognised that Transnet's rolling stock and locomotives "are being used at full tilt".

Not as productively, he concedes, "but they are unlocking some better efficiencies here and there".

Sometimes faint praise is the best praise of all. I think, instead of celebrating some dull worthy bemoaning the end of the world as we know it, we should raise a glass to the possibility of better things to come.