A spectacular adjustment in value on the horison?

[Dave A]

A not so idle thought that occurred to me today as oil prices sink below $30 a barrel.

It was oil price inflation that introduced inflation to the world in the late 1960's / early1970's after the recessionary post WWII global economy.

What are the chances that in the current environment of spectacular oil (and other commodity) price collapses (the exact opposite of those inflationary times) that we'll see a significant reversal of value in currency terms across the board too?

[Justloadit]

Interesting thought. I always stated that the cost of crude oil was far too high, and was caused by greedy producers, which systematically made consumers poorer with time.
What has been spawned is a new way of energy production, along with more efficient use of crude oil.
Oil producers now want to quell this new energy by dropping the price of crude oil.
I am afraid that far too much finance has been spent on alternative energy, and a new movement has been created, correctly or not by the "Global Warming phenomena"

[bones]

what i dont get is the pound
This is what the UK exports

Machine tools (we have that)
Electric power equipment (to an extend we have that)
Automation equipment (to an extend we have that)
Railroad equipment
Ships
Aircraft
Motor vehicles and parts (we have that)
Electronics and communications equipment (we have that)
Metals (we have that)
Chemicals (we have that)
Coal (we have that)
Petroleum (we have that)
Paper and paper products (we have that)
Processed food (we have that)
Textiles (we have that)

Today's exchange rate
Rand to UK Pound Conversion
£1 = R21.77

how the #### is that even possible?

[Justloadit]

It's not what the UK exports, it's that the majority of the big corporation headquarters are located in London, and are listed on the London stock exchange, so all profits the companies make are routed to London.

[Dave A]

So how far did we fall in 1 year?

So today I get an increase letter from a supplier. Not that they're actually giving their price increases just yet, just saying they're in the process of calculating them, and pointing out that -
The Rand has lost 43% against the US Dollar since January 2015!

So I thought "I know it was a rough year, but surely it wasn't that bad".

So I checked, and guess what -



It was that bad!
(Or if you're an exporter selling in USD, that good!)

Quite a kick in the tail there too, I see. Not really looking good for the slide slowing down on current form.

[Electrode]

I do not say this lightly but the reality is that South Africa is losing a fortune for 2 major reasons. The 1st most prominent is our inability to produce enough electricity. No industrial enterprise is willing to invest in a country that cannot guarantee a sustainable reliable power supply.

Secondly is the fact that we lose our ore minerals to global consumers. A refined product or even a finished product will fetch a better price then a unrefined minerals does. To this I simply must add that nationalization of our mines can help our current situation keeping wealth locally rather than exporting both our minerals and our net profits.

Unfortunately due to corruption and other contributing elements we cannot risk mine nationalisation. Until we have absolute certainty that we can trust the responsible entity this can be a disaster in the making.

[msmoorad]

Interesting thought. I always stated that the cost of crude oil was far too high, and was caused by greedy producers, which systematically made consumers poorer with time.
What has been spawned is a new way of energy production, along with more efficient use of crude oil.
Oil producers now want to quell this new energy by dropping the price of crude oil.
I am afraid that far too much finance has been spent on alternative energy, and a new movement has been created, correctly or not by the "Global Warming phenomena"

from what i learnt, the increase in the price of most commodities is due to futures speculation on the stock exchanges.
the producers of these commodities obviously just sat back & enjoyed the extra cash that the increase in prices brought.

http://money.howstuffworks.com/oil-speculation-raise-gas-price.htm

[AndyD]

......To this I simply must add that nationalization of our mines can help our current situation keeping wealth locally rather than exporting both our minerals and our net profits........

I wasn't sure if this was tongue in cheek but I'll take it at face value. Mining is not an easy game even for the professionals and especially not so in this economic climate. What makes you think any part of the mining sector would run better if it was government owned? I'd point to the state of the national airline as a very good reason to keep the mines out of the control of government and it's cronies. Secondly it would only be worth keeping the raw resources if we actually had a strong manufacturing sector that could turn them into something profitable but alas we don't.

[Electrode]

I wasn't sure if this was tongue in cheek but I'll take it at face value. Mining is not an easy game even for the professionals and especially not so in this economic climate. What makes you think any part of the mining sector would run better if it was government owned? I'd point to the state of the national airline as a very good reason to keep the mines out of the control of government and it's cronies. Secondly it would only be worth keeping the raw resources if we actually had a strong manufacturing sector that could turn them into something profitable but alas we don't.

As stated above, if things remain as they are the outcome will be devastating. Nationalization can be successful but the conditions must be right. To this we must realize that our country is losing billions to international entities. Our current situation is not sustainable. To change our heading we need to consider new avenues.

[southcape]

What are the chances that in the current environment of spectacular oil (and other commodity) price collapses (the exact opposite of those inflationary times) that we'll see a significant reversal of value in currency terms across the board too?

Our world or the real world? A world which gets smaller year by year. It is a very different today, to the one of fifty years ago.

Our current situation is not sustainable. To change our heading we need to consider new avenues.

As for South Africa this economy is entering unchartered territory. A space where the rules don't apply and all we can do is buckle up.

[Justloadit]

What are the signs on the road
or

[AndyD]

[polpak]

Viewing Rand conversion charts http://www.rainbownation.com/business/randvspound.asp

Images on the 5 year charts clearer, with some large variations compared them to the USD conversion, the Euro linked rates clearly being played.


While Oil&Gas not likely to run out soon, upwards changes in pricing likely later this year, early next year, as Saudi's forces many of smaller Frac suppliers out of business.
In USA the bankruptcy chapter 11 or otherwise of many is likely, wider concern is impact on US banks which financed many smaller Frac company loans, many of which seem unrecoverable.

US Federal Reserve concern, US bank losses may stall US recovery...


Impact from O&G prices forced down share prices for most Australia's O&G producers, while the major suppliers can keep themselves going selling bellow cost for a while.

To date appears less concern with Australian banks over loans possibly because most are producing,

Australian Reserve Bank has been forcing banks set aside more capital, with goal to reduce claims on government for support if things go really bad.


South Africa still seen as gateway to African investments, can it be made more attractive to investors, eg through ZA stock market, or soon markets.

Challenge for ZA government is make it clearer, easier and looking safer, to attract more outside investors to invest, particularly the diaspora who left and need encouraged to invest back in South Africa.




South Africa concentrate more on alternate energy generation and related devices, to be organized before O&G pricing recovery really starts to hurt, so can supply energy without need for O&G.

Areas needing long wire distribution networks may benefit more, though long wire distribution networks remain economical, particularly where used distribute power from larger alternate energy generators to where consumers needing it.

For metropolitan areas electric cars, buses, trucks would be useful, whether manufactured, assembled or distributed.


Encourage the diaspora to join this forum ;-)

,

[workshop]

Challenge for ZA government is make it clearer, easier and looking safer, to attract more outside investors to invest, particularly the diaspora who left and need encouraged to invest back in South Africa.

That should read Challenge the ZA government to make it..... or even better Change the ZA government to make it..... . But that is not going to happen is it? And the diaspora would be well advised to hang in there and stay where they are.

[cyppokagain]

if you noticed Dave the rand stabilized somewhat as gold recovered.
My opinion on commodities is they are sort of bid up but will decline later on in the year perhaps into '18.
You also have to look at relative things. While statements out of SA are somewhat intense the actual action is staggered
by political actors. Compare this to India which went full steam into idiot mode and banned the majority of circulating currency suffocating the economy in the process.
Brazil which had property and financial bubbles essentially pop with oil impact as well. Compared to other emerging markets SA isn't that bad.
If one does a ZAR to GLD chart one can see that as GLD strengthens the ZAR declines so ZAR strengthens in regard to USD. (not promoting anything just giving an example)

Everything is comparative.

We finally have property price declines here in Nyc (very very slowly though). US bank losses compared to what Europe has is nothing, our property bubble was and is not a big deal compared to the losses European banks have on their books including investments into the MBS and securitizations of said bubble assets here in U.S.