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CHRIS HART Economic Megatrends Setting the business and investment horizons
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2 Economy and markets InflationDemographics CommoditiesTechnology Emerging & developed markets Investment implications: longer term Climate Change
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CRB Commodity index: record commodity prices following 20-year bear trend Source: INet
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Commodities: inflation adjusted suggests there is scope for more! Source: INet
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Commodities: long term bull market. Super-trend, around which there will be cycles Supply Infrastructure Demand Expansion and maintenance: Global backlog across both emerging and developed markets Structural rise in demand from emerging market growth Depletion factor
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6 Demographics Age profile Dependency ratios Longevity Global demographics will be driving policy and economies Education and skills
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Energy prices: records and uptrend to be sustained. New technology a very long term limiting factor Source: INet
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Economist Food Index: a global problem. Fuel prices raising production costs Source: INet
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9 Technology Commodity prices Food shortages Climate change Utility and advancement Geo-political tension Technological gains: a key change driver Forgotten post the tech bubble Platinum Uranium Substitutes Exploration Extraction Climate change Bio fuels GM, hybrids
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10 US Superpower Geo politics: economic power shift from the developed world to emerging markets A decade ago Now US debtor nation Internal critical mass Growth dynamics Demographics No rivals both militarily and economically US catches cold…
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11 Global inflation Commodity prices Emerging market affluence EM demographics Regulation; protectionism Central banks Inflation: a multiplicity of “challenges”
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EU bond yields: trend change due to inflation. No longer benign due to commodities Source: INet
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South Africa: the short term
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BoP Interest Rates Trade Balance GDP Demand PPI $/R CPI The Business Cycle
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Inflation: relentless rise since mid-2006 Food, fuel, rand weakness Source: INet
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Food inflation: another surge Solution?? Source: INet
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Transport: highest inflation level since 1993! Source: INet
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Furniture: inflation? What inflation? Source: INet
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Maize: at high levels and staying there Source: INet
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Chicago maize Source: INet
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Wheat: tripled in two years Give us our daily bread will cripple the taxpayer! Source: INet
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Economics: lesson 1 Suppress price and create a shortage Source: INet Price Quantity Equilibrium point Demand Supply
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Other key economic issues
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GDP growth: cycles evident and roughly two years in duration
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Vicious cycle could become more violent due to extreme current account gap
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26 Current a/c -6% GDP The current account: does not matter until it does! 9 months ago May 2008 Current a/c -8% GDP ESKOMSlowing growth Politics Only!
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Interest rates: heading for recession in consumer sectors Source: INet
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Vehicle sales: in recession already Source: INet
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Property: house prices not keeping up with inflation for the first time in 9 years! Source: INet
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Inflation: Above inflation target for at least the next 1 to 2 years Source: INet
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Interest rates: could we reach 2002 levels Tito Mboweni is in a really bad mood! Source: INet
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Rand not helping Source: INet
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Rand: crash vs euro (but not a crisis!!) Source: INet
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Defeating inflation: if the hammer was the cause of the headache, more hammer is not the cure Supply - demand Fiscal reforms Cost - push Spend on infrastructure, lower cost of doing business, penalize consumption, reward saving Costs can be absorbed with higher productivity and competition Interest rates are bringing down demand but not inflation!!
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… and if you think we have a problem: Source: INet
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Keeping perspective Cyclicality Cycles are a natural part of any economy Current position Two years hence In a down cycle at present and there is further downside. 2008 will be rough! Resumption of up-cycle with greater strength due to lessons learned in this cycle
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Thank you
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