Gold Reaches Record High

Gold reached a record high today and traded at $1093 per fine ounce in London.

My studio guest today, was Alan Demby the Chairman of the SA Gold Coin Exchange. The last time I spoke to Alan Gold had just broken through the $1000 mark.

Alan pointed out that investors should consider physical gold in their portfolios. He recommends that one should hold about 10% in physical gold. You can do this by buying Kruger Rands or Collectible Gold Coins such as Mandella Coins, Fifa 2010 and etc.

The Gold Coin Exchange has a national network of Scoin Shops which make investing in gold very easy, there is one in The Somerset Mall.

Transfering Property Out of Trusts and Companies

Yesterday, my studio guest was Paul Clark, a leading property law attorney. He discussed all the issues around transferring your property out of trusts and companies to take advantage of the SARS offer of no Capital Gains and Transfer Duties.

There are many technical issues in taking up this offer from SARS and the run down is available free of charge from Paul Clark's website: http://www.paulclarkattorneys.co.za/ you will also find Paul Clark's contact details on his website.

All the major changes in Minister Pravin Gordhan's Medium-Term Budget Policy Statement 2009

• Exchange controls and associated red tape to be relaxed. Limit for individuals raised to R4m.
• Growth of 1.5% expected for South Africa in 2010, rising to 3.2% in 2012.
  Creating jobs, particularly among millions of relatively unskilled South Africans, is the country's greatest economic challenge.
• Nearly half a million South Africans have been retrenched over the past year and Unemployment Insurance Fund claims doubled in the year to April 09.
• Government considers establishing an industrial development and job creation fund.
  More than 13m people now receive social grants.
• By March 2010, 900 000 people will be receiving antiretroviral treatment.
• National Treasury and the Reserve Bank to focus on low inflation and a more stable and competitive real exchange rate.
• Tax revenue is down sharply as a result of the recession.
  Sars to increase penalties on non-payers to ensure "fairness".
• Policy aims to encourage a recovery without burdening future generations with unsustainable debt
• Mining displayed the first signs of recovery, with production rising strongly in the six months to August.
• Lower interest rates and falling inflation are expected over the period ahead.
• Eskom tariff increases will be required to align the price of electricity with the cost of generation.
  The current-account deficit is projected to increase to 5.7% in 2010.
  Government needs other forms of revenue. Proposals include broadening the tax base, improving tax compliance and the introduction of new taxes.
  South Africa is falling short of its commitments by failing to meet the "legitimate" service expectations of its people.
  Departments need to reduce expenditure on low-priority and non-essential items. Total net savings of R14.5bn at national level and R12.6bn at provincial level have been identified over three years for prioritisation.
  Cost cutting examples include catering, communication, consultants, inventory, stationery and printing, travel and subsistence, accommodation and entertainment.
  An additional 22 500 police personnel to be recruited by 2012/13. Special investigators for priority crime to increase from 350 to 2 400 in same period

South African Reserve Bank Repo Rate Decision 22/10/2009

Issued by Mr T T Mboweni, Governor of the South African Reserve Bank

1. Introduction

1.1 The prospects for inflation returning to within the inflation target range by the second quarter of 2010 remain promising. Domestic demand conditions continue to be subdued and currently do not pose a significant threat to the inflation outlook. Economic growth is expected to improve in the coming months, but is likely to remain below potential for some time. Domestic growth prospects are dependent to an extent on the global recovery which appears to be uneven across countries and regions. However the medium-term inflation outlook has been affected adversely by possible further significant adjustments to electricity tariffs.

2. Recent developments in inflation

2.1 There has been no publication of consumer price index (CPI) data since the previous meeting of the Monetary Policy Committee (MPC). The most recent data showed that the year-on-year inflation rate as measured by the CPI for all urban areas declined to 6,4 per cent in August, compared with 6,7 per cent in July. The main contributors to the inflation outcome were the categories of housing and utilities, and miscellaneous goods and services.

2.2 Producer prices declined at a year-on-year rate of 4,0 per cent in August, compared with a decline of 3,8 per cent in July. Food price inflation at the producer price level continues to signal dissipating pressures on food prices at the consumer price level. Agricultural product prices declined at a year-on-year rate of 2,0 per cent while manufactured food product prices increased at a rate of 0,1 per cent. Upside pressure on producer prices came from electricity prices which increased by 28,6 per cent.

3. The outlook for inflation

3.1 The CPI inflation forecast by the South African Reserve Bank staff continues to indicate that inflation is likely to return to within the inflation target range, on a sustained basis, by the second quarter of 2010. CPI inflation is then expected to stay within the inflation target range for the rest of the forecast period until the end of 2011. Compared with the previous forecast, the outlook showed a slight improvement for 2010 and 2011, mainly as a result of the changed assumption regarding the rand exchange rate. No adjustment has been made at this stage to the central forecast for possible further increases in electricity tariffs over and above those that are already assumed in the baseline forecast.

3.2 A number of domestic and global factors have contributed to the persistent downward pressure on inflation. The global economy shows continued signs of improvement, but the recovery is not uniform across regions. The pace of recovery of most of the Asian economies has been higher than that achieved in the main industrialised economies. The timing and speed of the withdrawal of the fiscal and monetary policy stimuli may have a bearing on the nature of the recovery in these economies. Global inflation is expected to be constrained by the relatively weak demand from the industrialised countries, although the US dollar movements may provide some upward pressure to commodity prices.

3.3 There are some positive indications that the rate of contraction of the domestic economy has declined and that the economy may emerge from the recession by the end of 2009. However, the mixed picture from the published data shows that the recovery is likely to be tentative, and the output gap is likely to remain positive for some time. The physical volume of manufacturing output declined at a year-on-year rate of 15,0 per cent in August, and by 2,8 per cent on a month-on-month basis. However, in the three months to August, compared with the previous three months, an increase of 0,8 per cent was recorded. The Kagiso/BER Purchasing Managers Index (PMI) increased markedly from 39,3 index points in August to 48,0 index points in September. The index shows that new sales orders have increased significantly, while manufacturers’ expectations of business conditions six months ahead improved to the highest level since early 2007.

3.4 Other sectoral developments indicate that the physical volume of total mining production increased in the three months to August but contracted on a month-on-month basis, whilst the real value of building plans passed continued to decline. The RMB/BER Business Confidence Indicator (BCI) declined to a ten-year low in the third quarter of 2009. The tentative nature of the domestic recovery is also reflected in the composite leading business cycle indicator compiled by the South African Reserve Bank which declined marginally in July, following three consecutive monthly increases.

3.5 Consumption expenditure by households also remains subdued, with real retail trade sales declining at a year-on-year rate of 7,0 per cent in August. In the three months to August, there was a 1,0 per cent decline, compared with the previous three months. Wholesale trade sales also declined further in August. Total new vehicle sales are also well below their levels of a year ago. However there are indications that the negative trend may have reached its lower turning point with zero or slightly positive rates of change being recorded on a month-on-month and quarter-on-quarter basis. The FNB/BER consumer confidence index declined in the third quarter of 2009 to a relatively neutral confidence level.3.6 Credit extension to the private sector continued to reflect both the weak household consumption expenditure and the prevailing tighter credit criteria. The Ernst and Young financial services index indicates that credit standards applied by retail banks to loan applications continued to tighten in the third quarter of 2009 but at significantly lower levels. Twelve-month growth in banks’ total loans and advances declined to 0,8 per cent in August 2009. Mortgage advances increased by 5,6 per cent in August, while instalment sale credit and leasing finance contracted by 4,2 per cent. Negative year-on-year growth rates were also recorded in credit card advances, bank overdrafts and general loans.3.7 There has been some recovery in asset prices in recent months, but wealth effects do not appear to be posing an immediate threat to the inflation outlook. Domestic equity prices have increased markedly since March, but are still significantly below the levels reached in May 2008. The various house price indices indicate a moderation in the rate of decline in house prices.

3.8 The exchange rate of the rand continues to provide downside pressure on inflation and is currently trading at levels against the US dollar similar to those prevailing at the time of the previous MPC meeting. During the past month the rand traded in a range of around R7,20 and R7,79 against the US dollar. The exchange rate of the rand has appreciated by 28 per cent against the US dollar since the beginning of 2009 and by 20 per cent on a trade-weighted basis.

3.9 The international oil price has increased in the past week but does not pose an immediate threat to the inflation outlook. Having averaged around US$70 per barrel for a number of weeks, the price of North Sea Brent crude oil increased to current levels of around US$76 per barrel, mainly as a result of the weaker US dollar and improved global growth prospects. In October, the domestic price of 95 octane petrol was reduced by 40 cents per litre as a result of both lower product prices and an appreciated rand exchange rate.

3.10 The main risks to the inflation outlook emanate from cost pressures in the economy. The trend of wage settlements still poses an upside risk to the inflation outlook. However there appears to be some evidence that nominal wage increases are moderating, although increases have generally been above the inflation rate. According to Andrew Levy Employment Publications, the average level of wage settlements amounted to 9,4 per cent in the first nine months of 2009 compared with 9,6 per cent in the corresponding period of 2008. These increases are consistent with the Quarterly Employment Survey (QES) of Statistics South Africa, which reported that growth in average nominal remuneration per worker in the formal non-agricultural sector of the economy moderated from 11,5 per cent in the first quarter of 2009 to 8,7 per cent in the second quarter. Unit labour cost increases declined from 11,3 per cent in the first quarter to 9,3 per cent in the second quarter.3.11 The substantial electricity tariff increases requested by Eskom are seen to be the main longer-term threat to the inflation outlook. Eskom has requested a trebling of the current electricity tariffs over the next three years, and the National Energy Regulator of South Africa (NERSA) is expected to make a decision in February 2010.

4. Monetary policy stance

4.1 The Monetary Policy Committee is of the view that overall the risks to the inflation outlook have not changed markedly since the previous meeting. Accordingly the Monetary Policy Committee has decided to leave the repurchase rate unchanged at 7,0 per cent per annum. The MPC will continue to monitor economic and financial developments and will not hesitate to adjust the monetary policy stance should the risks to the inflation outlook change materially.

News On The Local Property Front

Today, my studio guest was Ronell Beresford who is a leading bond consultant with over 20 years experience.

Ronell gave us this update of what is happening on the local property market:

The Property and Financial Market

1. If we look at The 3rd quarter, Cape Metro FNB Residential Property Barometer, it's pointed to significant jump in activity levels in the region, after a very weak 2nd quarter level.
2. This suggests that the region is beginning to feel the positive impact of the series of int. rate cuts that took place in the 1st half of 2009.
   
3. The estimate percentage of properties sold at below asking price, shows a significant decline from91% in the 2nd quarter to 83% in the 3rd quarter.
   
4. The average time of a property on the market prior to it being sold, declined sharply from 22 weeks in the 2nd quarter of this year to 16 weeks in the 3rd quarter.
   
5. People selling to 'down scale' due to financial pressure, has declined significantly from average 36%in the 2nd quarter to 25% in the 3rd.
   
6. Simultaneously, selling in 'order to upgrade', jumped from 9% of the total selling, to 17% over the same period.
   
7. Average selling prices of the Cape Metro area as a whole, is plus/minus R885 000.
   
8. The market improvement is largely the result of (1) int. rate cuts and (2) the banks' responses to better market conditions by relaxing their lending criteria.
   
9. 2 of the 4 Large banks are looking at granting home loans of u to 100%, whilst previously (especially during the 1st half of the year), they were granting on average between 70% - 80% of the selling price.
   
10. We must however take into account that banks are more so starting to rely on built-in credit scoring systems for the assessment of their home loan applications. This essentially means that customers behavior in terms of the way in which they conduct their accounts or credit, are seriously being taken into account when looking at granting them a new or further home loan.
    
11. Further interest rate discount negotiations with the banks on behalf of new home loan applicants,have become difficult and rates below 1% less than prime of 10, 5% is almost non-existent.
    
12. The improvement of the market has not only been seen in volume of transactions and diminishing price deflation, but also in an improvement in credit quality. According to the banks, their home loan arrears numbers have been improving since the beginning of the year.
    
13. Good news is that it looks like the economy is expected to provide more support for the market, as we emerge from recession.