NOBLE PRIVATE PORTFOLIOS Suite 3, 77 Park Drive Northcliff, Johannesburg P O Box 73022, Fairland 2030 Tel: (27) Fax: (27)

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1 NOBLE PRIVATE PORTFOLIOS Suite 3, 77 Park Drive Northcliff, Johannesburg P O Box 73022, Fairland 2030 Tel: (27) Fax: (27) ST September 2010 MANAGEMENT REPORT SEPTEMBER 2010 WALKING A TIGHTROPE The global economy is as unsustainable today as it was at the height of the credit super-bubble in Developed country governments are running excessively large budget deficits as a result of the vast private to public debt swap that has occurred. Overall debt including public debt remains too high and needs to be reduced as a proportion of GDP. The reduction in overall debt levels will be painful and prolonged even if it is successful: debt deleveraging takes time, unfortunately, the chances of a smooth and successful deleveraging are remote. The journey is akin to walking a tightrope suspended over a deep chasm: the prize should we reach the other side is a more balanced global economy with lower debt as a proportion of GDP and more balanced consumption and production around the world. make However to a successful crossing will require many things falling into place including increased collaboration between nations and an end to politicians acting in self interest. bumpy ride and profitable failure. Given such requirements it may be wisest to plan for a What needs to go right for us to reach the other side? Most obviously government budget deficits need to be reduced but clearly not at the expense of creating another major recession. Most developed market government spending is running at around 50% of GDP but Government revenues are typically capped at around 40% of GDP (hence the approximate 10% budget deficits we are witnessing in the US, UK, Spain, Portugal etc...) Governments need to make a choice as to whether they tackle budget deficits now (as in the UK) or whether it is better to let them continue for a period to try and kick start the economy (as in the US). Neither approach is without risk. Immediate fiscal consolidation runs the risk of lower employment and higher taxes reducing aggregate demand and forcing the economy into a new (1)

2 recession at a time when the tools required to respond to a recession are broken. Delayed fiscal consolidation runs the risk of countries becoming perceived as insolvent and the effect of the market then treating them as such (currency collapse and forced interest rate rises). Increased deficit spending as promoted by certain governments simply adds to the problem, heightening the risk of inflation. August provided further evidence that the global economic recovery is running out of steam. Faced with falling consumer and investor confidence, another dip in the US housing market and high unemployment central bankers and policy makers are preparing for another round of stimulus. Both the Federal Reserve and the Bank of Japan have announced additional measures to revive their ailing domestic economies. In Japan, the focus has been on reducing the value of the Yen, which has surged to record levels against the US dollar. To date, their efforts have had little impact and the Yen has continued to appreciate in value. In the US, the housing market has wilted after the firsttime home buyers tax credit expired on 30 April 2010, raising fears that the housing market will once again drag the US economy into recession. Back home, Jac Loubser, Group Economist of Sanlam said: In the meantime economic news will remain changeable and the possibility of a double-dip recession will still be raised. By implication South Africa will not be able to rely on international windfalls to sustain the economy, and domestic, structural reforms will have a crucial effect on growth possibilities. However, if one considers the current events in the South African economy, one would think we are living on another planet It is therefor imperative to Noble to make sure that your investment stays in tact for the months to come. With interest rates dropping and questions raised about the economic growth outlook together with a strong Rand, real returns will continue to be under pressure and asset allocation in these volatile economic conditions becomes more important. We have therefor for the last six months been positioning your portfolio to be exposed to cash, property and bonds as well as a conservative exposure to (2)

3 equities, the one hedging the other and also foreign exposure to benefit from the Rand weakening but becoming more stable. This will over the medium term position your investment to carry a reasonable return awaiting the longer term outcome of fiscal policy to start playing its role to ease off government debt. Patience for a few more months and not living beyond your means will benefit every investor in the end. Remember investors need economic growth to confirm profit growth. PIET DE JONGH PIETER VAN ZYL -3-

4 NOBLE PRIVATE PORTFOLIOS Suite 3, 77 Park Drive Northcliff, Johannesburg PO Box 73022, Fairland 2030 Tel: (27) Fax: (27) September 2010 BESTUURSVERSLAG SEPTEMBER 2010 Die wêreldekonomie is so onvolhoubaar vandag as wat dit op die hoogtepunt van die kredietsuperborrel in 2007 was. Ontwikkelde lande se regerings ervaar uitermatige begrotingstekorte as gevolg van die enorme verskuiwing van private na openbare skuld. Algemene skuld, insluitend openbare skuld, bly te hoog en moet verminder word as n deel van BBP. Die vermindering van algehele skuldvlakke sal pynlik en uitgerek wees, al is dit suksesvol: skuldvermindering neem ongelukkig tyd, die kanse vir n gladde en suksesvolle skuldverminderingsproses is skraal. Die reis is netsoos om oor op n tou wat oor n diep afgrond gespan is te trap: die prys, indien ons die ander kant bereik, is n gebalanseerde wêreldekonomie met laer skuld as n deel van BBP en meer gebalanseerde verbruik en produksie oor die hele wêreld. Om egter suksesvol oor te loop, vereis dat baie dinge moet plaasvind, insluitend verhoogde samewerking tussen lande en n einde aan politici wat in eie belang optree. Gegewe hierdie vereistes, kan dit die verstandigste wees om vir n stamperige rit voor te berei. Wat moet vir ons reg loop om die anderkant te bereik? Die regeringsbegrotingstekorte moet vanselfsprekend verminder word, maar beslis nie teen die koste van nog n groot resessie wat geskep word nie. Die meeste ontwikkeldemarkregeringsbesteding beloop ongeveer 50% van die BBP, maar regeringsinkomste het tipies n boperk van ongeveer 40% van die BBP (vandaar die ongeveer 10%-begrotingstekort wat ons in die VSA, VK, Spanje, Portugal, ens. sien). Regerings moet n keuse maak oor of hulle nou begrotingstekorte aanpak (soos in die VK) en of dit beter is om hulle vir n tydperk te laat aangaan om te probeer om die ekonomie aan die gang te skop (soos in die VSA). Nie een van die twee benaderings is sonder risiko nie. Onmiddellike fiskale konsolidasie loop gevaar van laer indiensneming en hoër belasting, wat totale vraag verminder en die ekonomie in n nuwe resessie dwing op n tyd

5 wanneer die instrumente om op n resessie te reageer stukkend is. Vertraagde fiskale konsolidasie loop gevaar dat lande as insolvent beskou word en die mark hulle dan as sodanig behandel (valuta-ineenstorting en gedwonge rentekoersstygings). Verhoogde tekortbesteding, soos deur sekere regerings aangemoedig word, dra eenvoudig net tot die probleem by, wat die risiko van inflasie verhoog. Augustus het verdere bewys gelewer dat die wêreld se ekonomiese herstel spoed verloor. Dalende verbruikers- en beleggersvertroue, nog n daling in die VSA se behuisingsmark en hoë werkloosheid, laat sentrale bankiers en beleidmakers vir nog n rondte van stimulus voorberei. Sowel die Federale Reserwebank as die Bank van Japan het bykomende maatreëls aangekondig om hul swak binnelandse ekonomieë te herstel. In Japan was die fokus om die waarde van die jen te verminder, wat tot rekordvlakke teen die VSA-dollar gestyg het. Tot op hede het hul poging nog min impak gehad en die jen het steeds in waarde geappresieer. In die VSA het die behuisingsmark gekwyn na die eerstehuiskopers se belastingkrediet op 30 April 2010 verval het, wat vrees laat toeneem het dat die behuisingsmark weereens die VSA-ekonomie in n resessie sal sleep. Hier by ons het Jac Loubser, Groepsekonoom van Sanlam, gesê: Intussen sal ekonomiese nuus onveranderd bly en die moontlikheid van n dubbeldaalresessie sal steeds geopper word. Per implikasie sal Suid-Afrika nie op internasionale meevallers kan staatmaak om die ekonomie te ondersteun nie, en binnelandse, strukturele hervormings sal n uiters belangrike uitwerking op groeimoontlikhede hê. Indien mens egter die huidige gebeurtenisse in die Suid-Afrikaanse ekonomie beskou, sou jy dink ons bly op n ander planeet. Dit is daarom noodsaaklik vir Noble om seker te maak u belegging bly ongeskonde in die volgende klompie maande. Met rentekoerse wat daal en vrae wat oor die ekonomiese groeivooruitsig gevra word, asook n sterk rand, sal reële opbrengs steeds onder druk wees en batetoewysing raak in hierdie onbestendige ekonomiese toestande belangriker. Ons het dus die afgelope ses maande u portefeulje so geposisioneer dat dit aan (2)

6 kontant, eiendom en effekte blootgestel word, asook n konserwatiewe blootstelling aan aandele, die een wat die ander een verskans, en ook buitelandse blootstelling om te baat by die rand wat kan verswak. Dit sal op medium termyn u belegging posisioneer om n redelike opbrengs te verdien, in afwagting van die langer termyn se uitslag van fiskale beleid om sy rol te begin speel om regeringskuld te verminder. Geduld vir nog n paar maande en om nie bo u inkomste te leef nie, sal elke belegger op die ou einde baat. Onthou, beleggers het ekonomiese groei nodig om hul winsgroei te bevestig. PIET DE JONGH PIETER VAN ZYL -3-

THE SIGNIFICANCE OF AUTOMATIC FISCAL STABILISERS IN SOUTH AFRICA JAN ABRAHAM SWANEPOEL. in fulfilment of the requirements for the degree

THE SIGNIFICANCE OF AUTOMATIC FISCAL STABILISERS IN SOUTH AFRICA by JAN ABRAHAM SWANEPOEL in fulfilment of the requirements for the degree DOCTOR COMMERCII (ECONOMICS) in the FACULTY OF ECONOMICS AND MANAGEMENT