Category : Uncategorized

Bring inflation under control

US Federal Reserve Chairman, Jerome Powell’s announcement of a 75-basis point hike in the key US interest rate denotes that central banks are finally dispensing the bitter medicine to bring inflation under control. I would argue that the Fed has been behind the curve in not anticipating a more sustained period of inflation, nor indeed the rapidity and intensity of the upward curve. This is borne out by the fact this week’s interest rate hike is the highest in almost thirty years. This is a lesson to us all about complacency, combined with conceptual and institutional inertia. Simply because central banks have more or less got it right for the past few decades (even during the global financial crisis of 2008 and indeed in response to the Covid-19 pandemic economic lock-downs), this does not translate into omniscience.

Monetary policy committees, whether in the US, Europe, Asia or South Africa rely on available data, past experience and future modelling, yet all of this amounts to imperfect knowledge. Moreover, like it or not, and despite their constitutional and legal mandates, reserve banks are not insulated from the social, economic and political pressures of the jurisdictions in which they operate. The most obvious contemporary example of this is Turkey in which political interference has resulted in no interest rate hikes for five months, a 73,5% inflation rate, the Lira trading close to an all-time low against the greenback and food prices doubling over a year. To add insult to injury, in this period of heightened fuel prices, the price of petrol at the pump has risen three times in Turkey this week alone.

While we are nowhere near the hyperinflation (defined as a greater than 50% monthly increase), experienced by Zimbabwe and Venezuela in recent decades, the ‘post-pandemic’ wave of inflation is proving to be more sustained than many leading economists had forecast or wished for. While there are always winners in an inflationary environment and indeed mild inflation can be good for economic growth, it is often the poor and financially vulnerable that pay the highest price in real terms. An inflationary environment often tips financial vulnerability into a vicious cycle of more expensive borrowing, which, in turn, dampens economic activity and growth, sharpens inequality and deepens poverty levels.

Given the extraordinary set of threats emerging from Russia’s war in Ukraine, from higher energy shocks to further supply chain disruptions and grain shortages, high inflation poses a particular corrosive threat to global economic recovery. This toxic cocktail presents us with a unique set challenge not previously experienced by this generation policy-makers and any ‘over-reaction’ by central bankers holds the very real possibility of plunging economies into recession with resultant stagflation. But the current un-chartered territory also presents an opportunity for the private sector to work with government policy-makers to forge new ways of stimulating economic growth and recovery.

This is a message to South African policy-makers too, as creeping inflation throttles economic recovery. Economic and monetary policy may be the legitimate preserve of Treasury and the Reserve Bank, but economic recovery, sustained growth and job creation is driven by the private sector. We can’t’ achieve this under conditions of siloed isolation, so let’s get the social compact rolled out and lead globally rather than follow.

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CORPORATE LESSONS FROM QUEEN ELIZABETH

In 1952, a 25-year-old mother of two young children with no formal education was thrust into one of the most challenging and privileged positions in history. 70 years later, there is a myriad of lessons to be learnt from the reign of Queen Elizabeth ll. I am no royalist, but as a businessman, I have respect for the way in which the Queen has run her ‘corporation’ for an unprecedented seven decades now.

First and foremost, to state the obvious, Her Majesty is a woman and has proved male chauvinist sceptics and doubters wrong repeatedly through the decades. After all, it took the UK almost another three decades to elect its first female Prime Minister. Paradoxically perhaps, the monarch did not always see eye-to-eye with her first female head of government, Margaret Thatcher.

Her relationship with the other 13 Prime Ministers who have served under her has been uneven, but always cordial and professional, irrespective of political stripe and persuasion. It is hard to imagine that her first Prime Minister was none other than Sir Winston Churchill and perhaps this was both a baptism of fire, but also the best possible introduction to understanding the machinations of Westminster and British parliamentary politics. To return to the point of corporate lessons and learning from her majesty’s 70-year reign, is the importance of tenacity and consistency irrespective of the difficulties one faces in one’s business career and in running companies. Relatedly, the ability or facility to deal with the widest range of people is a vital ingredient to personal, professional and corporate success.

While always dignified and often formal, her majesty has a warm personal touch with whomever she meets and interacts. She exhibits loyalty and demands loyalty in return and this has resulted in some notable friendships that have endured over the years through thick and thin. In this regard, one of her favoured friendships and indeed confidants was none other than our very own President Nelson Mandela. Indeed, their friendship blossomed to the point of being on first-name terms and exhibiting a very public mutual affection. This could only be achieved by a shared sense of duty and public service. Again, there is another lesson in one’s role as a businessman and chairman/CEO, which is to remain grounded, yet see the bigger picture and purpose in both business and life.

Despite the enormous global schisms and ruptures that have unfolded over the decades, including numerous regional wars, the fall of communism and the end of empire, the monarch has managed to hold her own multinational corporation (the commonwealth) together and she remains a revered and respected figure globally who is the envy of any global CEO.

What then is the overarching lesson the corporate world we can deduce from Her Majesty’s remarkable 70-year reign? I have enunciated a few, but for me, the primary learning is to ensure that one’s company or corporation has a defined and enduring purpose that adds real value to people’s lives day after day.

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Appleton

The key to a well-planned Estate is a professionally drafted Will. Fortunately, you’ve just met the experts in drafting comprehensive and bespoke Wills, tailored specifically to your needs. Speak to us today. 0800 50 60 70 or email clientcare@appleton.com

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Warwick

It’s not easy being an independent financial advisor in these difficult times. Why not join the Warwick family to access support and industry-leading products and still maintain your independence and client base? Contact us on 0800 50 50 50 or visit our website warwickwealth.com

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Cadiz

At Cadiz, we take full advantage of the market’s short-term pessimism by investing in good quality businesses that are experiencing temporary setbacks and are well priced. It is a strategy that has paid off time-after-time. Join our network at https://cadiz.co.za/

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Warwick

100% PEACE OF MIND

Warwick have partnered with 100’s of Financial Advisors across South Africa ensuring peace of mind for them and their clients.

Contact us for more information www.warwickwealth.com or 0800 50 50 50 #warwickwealth #theinvestmentspecialist #wealthmanagement #capetown #southafrica

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The Spirit Foundation

Spirit Foundation proudly support Lords Taverners South Africa (LTSA)

LTSA’s motto is Giving young people a “Sporting Chance”.

LTSA enable young people from disadvantaged backgrounds and those with disabilities to enjoy sport.

Their mission is to enhance the lives of disadvantaged and disabled young people through sport and recreation.

www.lordstaverners.org.za

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Appleton Times – June 2020

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Cadiz

“The season of failure is the best time for sowing the seeds of success ” Paramahansa Yogananda

The Cadiz goal is to grow all assets that are allocated to the team in real, inflation beating terms, over the long-term and ensure they are protected from any permanent capital loss. Cadiz Asset Management invest in good quality businesses at the right price level, which also drastically reduces the potential for any permanent capital loss.

Cadiz, investing for the future.

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Appleton

A message from the Appleton Managing Director, Tim Hughes.

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