WorldWideMarkets Episode 693 — Transcript

Published: Wednesday, 2 September 2026 | Runtime: 30:01

Raw auto-transcript as supplied — unedited. Contains transcription errors (see notes at foot).

Simon Brown (00:05) World World Markets this week episode four nine three for second September. Simon Brown, I’m doing something slightly different today. I was doing a keynote at an event last week. a four-slide presentation, oil, elections, rates, and gold. And I have grabbed the audio and dropped that in here. Worldwide Markets, powered by Standard Bank Global Markets, Retail, and Shift, the global money app that puts travel, shopping, payments, and investments in the palm of your hand. Enjoy the cheapest forex rates anytime, anywhere. Shift powered by Standard Bank. Thanks to Standard Bank. enjoy this. Normal service will resume next week. My remit this morning was quite simple. Chat to a group of people. what wasn’t said, what was implied was don’t scare them. we’ll see how we can do with that part. I’m keeping it simple. I have four slides on the four pressing issues that are facing global markets, economies, geopolitics at the moment. and I’m ignoring AI just because I thought, you know what, let’s just leave AI alone. Tonight we’ve got NVIDIA coming out with results. The world will get excited. Top tip NVIDIA has results, the stock goes down, and then four or five days later it goes up again if you want to try your luck with that. But I’m leaving AI alone because I love it and I play with it, but that’s not what we have for today. And if I do it the right way. There we go. Let’s start with oil. I’ve always had petrol cars. More recently, my wife bought a Diesel car and she takes my car every morning to work I’ve got fancy roadster, so she takes the roadster and leaves me with the diesel car. I’ve been put diesel in. Whoa, respectful people who drive diesel cars now. Would that stuff be real proper expensive? The thing with oil, let’s go back to February 28th. end of the tax here. Saturday morning, things were lovely, still summer and warm up here in Jogo. and oil was in the mid-sixties, and it actually touched earlier in the year mid-59 and change. I’m talking Brent, because this is the oil that we care about. The short version is the world was awash with oil. It absolutely was, and we have seen the oil price slowly taking down, and it got to sixty, it didn’t seem to be stopping. we got the what do we call it? Kidnapping stealing of the Venezuelan president. that got the world a little bit interested. Although then we learnt a whole bunch of other oil, like for example, Venezuela has heavy sour as opposed to light sweet. I didn’t know none of this stuff. But so who uses heavy sour? It’s similar to Canadian oil, the big users of that. Maybe sour oil is actually interested in China, with the the the teapot refineries, which are sort of private refineries, sort of Roman pot operations. You are buying oil from from North America and shipping it across to China and refining it. Then of course the attack on Iran. Closing of Straits for Moors. I remember that Sunday the first I went and I was googling, and the one piece that everyone said is that you know what, the straits have never been shut down in the history of the straits. They can all be fine. Well, maybe you live in interesting times. The straits got shut down. About twenty percent of the world’s oil flows through that market. To be clear it’s not just oil. It is urea, which is a fertilizer, it is gas, it is it is helium, it is all sorts of byproducts as well that come through that. Are critically important. Some of those we thought we needed hello march and that crazy petroleum and diesel price increase. Some of it is still coming. The fertilizer of the product which was planted in May is going to get harvested in October and will be on our table for Christmas. It’s going to be impacted by the increase in the price. So some of that is that drag effect is still going to come through. On the surface of it, if you tell me back in February that we were going to lose 20% of global oil supply in one false sweep, and yes, we can pick up some extra, you know, Nigeria can pump some more, Egypt, other markets a bit, but that probably we would lose you know twenty percent, maybe it’s fifteen. You would think to yourself an oil price of at least 150 hectares, $200 wouldn’t be out of the question. So we only got to $120. And they’ve made us realize that actually we didn’t properly fully understand the global oil market. There are a couple of very important points. The first is the amount of oil used per unit of GDP growth globally is about 60% lower than it was in the 70s. We just become more efficient as a as a species, as a humanity, as a planet. Secondly, there is we’re kind of lazy with oil. It it it kind of operates in a just-in-time environment. But that’s actually not so. And what you discover is that refineries will have a couple of weeks of oil backlog sitting, which they can transfer through. And and we hadn’t realized just how much sort of excess capacity simply sits in the system overall globally, in terms of oil and ultimately energy production. And that caught most people by surprise as well. What we also didn’t understand was just how much China has stole oil. China of the of the and let’s call it fifteen percent of oil that we lost because let’s assume there’s some cutback. Of that fifteen percent we lost, five percent comes back in terms of increases in production from the likes of the Nigerias and the South Americas and and even Venezuela and other such bases, which gives us about ten percent shortfall. China basically stepped up and divided the other five percent from strategic reserves. Now to be clear, the G7 are also using down there their strategic reserves. Reserves, the US reserves are at the lowest level in decades. But it turns out that China had a lot more oil than anyone anticipated by magnitude. And to be clear, we don’t know how much because at this point they are still. So China is importing around 78% less oil than they used to. Two or three percent of that is then just saying let’s use less oil, let’s, you know, use our electric cars and not our ice engines, etcetera. The other five percent is they’ve got in storage. China has storage for days, years, months. You don’t know why. We still don’t know quite how much. You can measure some of it because you can get satellite imagery on on on open Above ground storages, you can get a sense of what they’re using there. And even there, they seem to have maybe used half of their oil. That’s above ground. They’ve paid to got a very large amount below ground. That’s some conspiracy theory. Why did China have so much oil? Because they were expecting probably sanctions against China. In other words, the world turning against them. Why would the world turn against China? Attack on Taiwan. That’s the one thing that you know is not gonna happen. The idea that China might attack Taiwan is off the table. There’s two ways we know that. Both of them, ironically, wars. Both of them started by well. One is Russia and Ukraine, one is America and Iran. What are we learning from both of those? The giant, great, big, overwhelming superpower can’t beat a little mouse, and that little mouse has drones. Warfare has changed. So suddenly China looks at Taiwan and says they’re easy to beat, but if if America can’t beat Iran and if Russia can’t beat Ukraine, really can they actually fundamentally move in on Taiwan? I think that gets off the table. So we learnt a ton about oil, most notably that we’ve got a lot more flex in it. Where from here? So I don’t think Iran is in any hurry to to to make peace in our time, dead time, anyone’s time, for a couple of reasons. One, well hey, oil at ninety dollars, they’re quite Like that. The sanctions are gone, what they can sell, they get a better price for. and they quite like hurting Americans. They don’t like America very much. Death to America is their favorite saying, and right now this is causing pain for America. Iran is quite happy to sit there. How long until? Well, it wouldn’t surprise me if 21 January 9th, 2029 isn’t perhaps on their agenda, because that’s the day Trump leaves office. And they just kind of like sticking it to the orange map because they can. Hey, you got attacked, this is your payback. In a sense there. What we do know is that probably we are fine with oil, it’s probably in the $80, it probably pops up again into the 90s. This is probably where oil is for actually quite some time. Saudi Aramco, the biggest oil-producing company in the world, had results recently. The CEO said just to refill all that capacity that was sitting in the system that I spoke about up top, 18 months to two years. In other words, oil’s not back at 60, probably until 2030, maybe 2029. We are a long way back from $60 book. What we have probably is $80 book. What we have locally, because of course those diesel cars aren’t meant to fill themselves, we have a RAND that is on our side. $15.92 this morning when I checked, probably moving stronger. The RAN has been driven broadly by two things. One is frankly dollar weakness. We’re going to talk about that more in a moment. And then commodities. When those precious metals go higher, and Kinfala sells PGMs and goldfields sells gold bars, they get dollars, they turn it into rands, that’s the net effect on the currency and makes it stronger. If you go back to 2021, when you had PGMs over 2000, and the RAND goes down. Can’t remember now. Cheap cheap, eleven or twelve, maybe thirty, but I forget the point being is that what we had seen there was a a a a commodity run that was saving our currency. That’s the fun fact. April last year, Liberation Day, Iran gets nineteen ninety against the dollar. Call it twenty. This morning we have fifteen ninety. We’ve picked up four Rand against the dollar in a little over a year. For the older folks, Not working at you, sir. Who remembered Iran basically being a one way bet. I I mean over time, in the short term, like medium term, think we’ve to seriously revisit that and give thought to what we really, really mean around that scenario. Which then brings us to something else that is happening at this point. And we have elections. So twenty twenty four, like one and half of the world voters in one single year was better. This year we have two elections. One is on the third of November, US victims. One is on the fourth of November, South African local government. Let’s deal with them in the inverse way. South African local government elections, in other words, who’s going to be the mayor of Jobo? Any of you three? Because man, we go through mayors in Joburg like there’s no tomorrow. The only reason I want these license is because I don’t answer my phone. But if you pick up your phone and say all that, you’re going to have an invite one day. Yeah, I want to be mayor. who’s going to win the election? The biggest party will be the DA. Who will be the mayor? that’s a different story entirely. have absolutely no idea. Helen Soder thinks that it can be a it’ll be someone coming in. The question is, will it make material short-term differences to our city? The answer is no. I love the place. But you don’t turn a city around in an afternoon. It’s gonna take time. Helen Zillary said it’s probably gonna take two terms, which means 10 years. But there will be some quick and easy wins which she will do because she’s a politician. Heck, just fill up some potholes. You know, just do that, and suddenly my life is a little bit better. and sort of dodged the potholes in public side. So there are some easy wins, and then there are some long-term solutions. But I mean politics is messy and coalition politics is messier still. At at at at city level, we have a fair bit of of history of coalition politics at the higher levels, both notably provincial and certainly at national, we are very used. The experts in the field here is the DA because they’ve got the West of Cape experience where they were opposition and then coalition and then eventually majority. But what we are Going to start moving towards this as a multi-party system. Coalitions are in our futures. The question is: are our coalitions in Germany, where Angela Löffel kept a coalition going for 12 years and everyone hating each other, but she held together? Or are our coalitions in Italy, where Italy’s had, I think, 50 different governments since World War II? Here’s the weird fact. So far we joke. So far our coalitions hold. not at city level. At city level, they do not hold. Hence we have had so many mayors of Joburg, Schwani to be no better, the Kelleni know better at all. It really needs to be held reasonably well. But sure answer is that we are so far looking like we can maybe do coalitions, and we will of course get better at it. In our government of national unity, the only people with proper experience there was the EA, the ANC were kind of floundering. but to the infinite respect of our political system, is that when our leaders lose, they go sit in the opposition benches. And that’s important. That is hugely important. And their exception. Peterquenny, when they discovered that they didn’t have the votes to elect their mayor, basically tore the place down, made everyone come back in four days, and had envelopes with, I don’t know what you’ve written, envelopes with politicians, but we can all imagine. But more or less, when our politicians lose, they go sit on the other side. Well you know what? That is all we ask of our politicians. Because asking them to be hard-working, truthful, and everything else is a step too far. We just ask them to leave when they lose. The US election gets more fun. Trump has the worst rating since Hoover. Remember Hoover was an American president. Which century? Not this one. Last one? I I honestly don’t know. Anyway, no one likes Trump. And as a rule, in the midterms, the president loses support. In theory, the the the House of Representatives four hundred odd members, should flip. It way different at this time it should be a democratic. Then he has to be gerrymandering like no tomorrow that might change the scenario. The Senate may be unlikely. The point is is that right now America has been run as a as a as a morrow. Trump does and he just does. In theory, Congress is there to stop this happening and Congress is basically being yo knock yourself up, we don’t know. does it change if we get the Democrats in charge of Of either or probably the the the the the house unlikely the Senate. Does it change? Does it make Trump stop ruling by decree? No. All it means is that you now have a part of the government which is going to be giving him a hard time and trying to impeach him and shouting at him and telling them he can’t do that and he can’t do this, and is any of that going to stop him? No, we just get a bit more angry keys. So I don’t see massive significant change coming out of the US at all. Think me. The US is big enough to c I mean to kind of manage it. I mean, is it ideal? We can debate that into the forever’s that’s to me less of the point. The point is that we’ve learned a few things under Trump. The first is that democracy is more about norms than laws. That was the scary message to learn. We thought democracy was hard-coded, that there were things you did because they were the right thing and we were good people, and then it turned out actually you just did them because you felt like it. And if you wanted to do something else for hey, you could do that too. Let’s be clear, politicians from all over are looking at that. I can be liking, I can’t be liking. The thing is, is that the war carries on. I mean, are we in a, you know, there are things out there which are are, and I’m trying to think of concrete hard examples, but put it this way, okay, USAID disappeared, poof, gone, vanished. My sister works in that particular space, agenda HIV, her funding vanished, overnight, gone. Phone call four days later, hey hey China, you need some money. China says. They’re doing what America’s doing, right? South power. They want influence too. There are real implications of it. What it wasn’t was the end of the world. And I think we all five years ago if I said to you American democracy would be over, we’d all like, ooh, that’s really bad, the world is ending. Well it turns out American democracy can be over. So the elections in November are important. They fund. I don’t think they’re world changing in any significant thing. So then we get to what is world changing. These are bond yields from various different G7 countries. The absolute levels don’t matter. What we can notice is the absolute trends. This starts goes the 70s. Yields were coming down, down, down, down. Debt is getting cheaper and cheaper and cheaper, particularly for governments, which meant that governments just borrowed more because when debt is cheap, we borrow more, right? That’s how we wire it. The size of our house that we buy is not determined on how much money we got, it’s how much money we can borrow. And the borrowing depends on what the interest rate is. That’s just human nature. And of course, we’ve had negative rates. This is Japan, but I there was negative rate Yields all over. There were trillions, there was at one point over 20 trillion dollars of sovereign bond that was having a negative yield. Economics 101 says that can’t happen except for the part that it did. People were paying governments to hold the money. Like that’s no sense whatsoever. But what it was was, you know, whether you want what’s the old saying? Sometimes you want a return on your money, sometimes you want a return of your money. And the uncertainty meant that people were willing to pay to make sure that they got their money back. We’ve moved on from that. We’ve moved into a completely new world, pretty much post-pandemic, and it has been driven by a number of issues. One of them is inflation. Right? What is the bond rate? The bond rate is saying I’ll pay you money over a period, 10 years, 30 years, whatever it might be, and I’ll guarantee you a rate. What your question is, is okay, that’s fine. What’s inflation over that period? Because I want to rate ahead inflation. So if we think US inflation is two percent and you can get three percent, or you’re making one percent in dollars, that’s fine. But if your expectation for inflation is not two percent, it’s three or four percent, you want a higher return on your debt. And let’s be clear, US hasn’t been at their inflation target in five years. And this new chapter is like he’s I mean he’s he’s Turkey, he’s not America, he’s not there to do the same financial policy. He speaks at Jackson Hall later this week. We’ll see what he has to say there. But he’s very much a case of he wants lower rates. To be clear, everybody wants lower rates. Everyone. The entire system wants lower rates. Even the one holders wouldn’t mind lower rates because it would mean lower inflation and all of those sorts of things. The problem is that we have inflation at the high end, particularly in the US. What we also have, is there a world in which Donald Trump instructs his Treasury Secretary not to pay coupon the interest on a bond? The answer is no way on earth. Except I’ll raise you ten things that Trump has done that we said no way on earth. Would it be extreme and insane? Yes. Would it be the first extreme crazy thing happened out of America in the last two years? I didn’t know. I don’t think that will happen. Well what we do have in America is last week they crossed forty trillion dollars of debt. Trillion dollars with a top The cost of that is 1.1 trillion a year. It is the second biggest expense after Social Security at 1.5 trillion, and then it is interest. They have a primary budget deficit. In other words, excluding interest payments, they spend more than they earn. Easy to solve. Raise taxes, cut spending, problem solved. Politicians, never gonna do it either. That number is gonna get bigger. As debt rolls, Ten years ago, the American government put out a ten year bond, two percent yield. It expires this week. They don’t pay it back because they haven’t got the money, they roll it into a new ten year bond, four point seven percent. The interest is going up. It’s going up because the debt’s going up, it’s going up because the yields are going up. And the yields are going up because the market is like you’re guys, you have a problem here. And there’s no plan to solve the problem. To me, oil and AI and all the other worries that we can find in the market, and there are lots of worries that we can find. This is what matters most. This costs governments money. Of the G7, only one country doesn’t have a debt to GDP over 100%. It’s Germany. It’s fairly sweet that it’s Germany, but it’s Germany. Japan’s a 220, Americans are 124% debt to GDP, every G20 nation. Now, is this the end of the world? No. Because how do you pay back debt? Well, you there’s two ways to solve the three ways to solve the debt problem. You know, cut spending, increased tax. Okay, that’s not going to happen. One of the other two ways we solve the debt problem is a government. Deflation. Deflation makes the debt less onerous. Because it’s inflating, it’s deflating away, it’s going away, it’s inflating, it’s vanishing. And you print money. If you own the printing bits. Okay, printing money leads to inflation, but inflation devalues your debt. This is what Turkey did, and it’s what we’re gonna start to some degree to start seeing happening here. Scott Scott Bessent. Fun fact Scott Bessent, the Treasury Secretary, was working with SARS when they broke the found the early nineties. He’s now the Tre the Secretary of the Treasury in the US, you would call him a finance minister, and he wants to take on the bond market to get the thirteen and ten year race lower. Here’s the thing you can’t take on the bond market, take that back. You can take on the bond market, you will lose every single time. You don’t fight the bond form. It’s bigger than you. You can influence it. So when he came out last week and said, hey, I’m gonna be buying the 10 and 13s to try and suppress the yield, it worked for 30 hours. And those yields are now higher than they were when he made the statement. The finance minister of America can’t scare the bond market. No one can scare the bond market. This is the work. We are going to see increased costs of interest. We’re going to see increased debt. The and I haven’t got time to go into the philosophy. There is an economic philosophy behind Trump’s plan in terms of what he’s trying to do and what he’s trying to achieve and how he’s planning to get to a balanced budget. So far not playing so well, largely because his tariffs kept getting shut down, and largely because tariffs are an e a horrible idea, but they were a revenue stream. His doge Department of Government efficiency didn’t work at all. this story is not going away, it gets worse, it is gonna get tougher and tougher. Really what this does do is it makes our debt look attractive, so our bond yields are actually quite quite nice. We our ten years sitting in eight and change. Debt. That is what Yeah, how do you yeah, how do you go bankrupt slowly then fast? What’s always the driver? It’s always debt. It’s always debt. Which then brings us to gold. Now gold is really simple. In a perfect world. But things are scary. You buy gold. Why? Well because it has utility that you can put it in a pocket and walk around with it. It has utility in that it’s fungible, in that a gram of gold here is a gram of gold everywhere in the world. It has utility in that people know and recognize gold the world over. I have a yeah so we know what gold is in the and that when we’re scared, we want something that will continue to hold its value, a store of value. We were told that Bitcoin would be a store of value. Bitcoin is a lot of things. It’s not a store of value. Gold really is. That’s a fun fact. 2000, if you bought gold and you bought the SP 500, gold stands better. Staggering number. Gold stands better. It’s done really, really well the last couple of years. I’m picking my times, right? 2000 was when Gordon Brown, no relationship, no relation. Gordon Brown was selling off the English the Bank of England gold at $250 an ounce. Today it’s $4,600 an ounce. That man that you think you’re having a bad day? You’re going to get nothing until the rough. Again, I stretch. No relation, No relation. Anyway, so Gold had a rough twenty twenty-six. Five thousand five hundred at the beginning of the year, late January, collapsed down to four thousand, now running again. Why was gold collapsing when the world was in at war and oil was up and inflation was worried, etc.? Because if I could suddenly go and buy American debt at four and a half percent yield, what do I need gold for? Because America is always going to repay their money. They’re going to repay their debt. Yes, they might have to run a printing press, but they will repay that debt absolutely. And that’s worked, but there are two things playing in in in in in co-opship. And the one is concern around America as the global superpower economically, concern around America as a global superpower geopolitically and military, and concern around America as a prudent financial country. And to be clear, not just in America, there are very few countries that are so fun fact, South Africa has a primary budget budget service. We spend less than we earn. It’s too late in interest. We spend less than we earn. There are probably five countries in the world that do that. None of them are a G7. Gold still has its base. I think you Anglock the world will tell you to sell everything and buy gold in the world ends. You want water and pumpkin seeds. But gold suddenly has a place in the portfolio. I was a kid in the 80s, my grandfather was teaching me about markets. And he always said to me, and he had you know he had come up through the boom of the 70s, he had seen gold in 850 in the early 80s and stuff, and he always said to me, You must have five or ten percent of your portfolio in gold. And I’m always like, Yeah, Gramps, yeah, yeah, look at gold, it’s just going down, yeah, Gramps. And unfortunately he passed away too, he never got to see that ultimately he was right and one should. But I think we’re getting back to that book. What does gold supposed to do? in your portfolio? Nothing. And that’s just it. Gold’s return, real return, after inflation, should be zero. That’s what it’s designed to do in your portfolio. Portfolio to give you that stability so that when the politicians do crazy things and when rants go crazy and diesel prices and everything else, gold is just sitting there doing nothing. Of course, it doesn’t do that in a straight line, and it gets very, very volatile at points. 5,500, 4,000 down at the bottom. But there’s a weird thing. I spent my entire investing career. Saying to the world, I don’t hold gold, I don’t want gold, I’m not interested in gold. My view is always you should have one Krugeran. So then if you have to toss away, you can pull out your Krugeran and intimidate the opposition. Suddenly here I am, I said I hold gold, I hold Indo Gold Ashanti, I’m looking to maybe buy some other gold mine in the next week or so. I couldn’t do it this week because I was talking on a front run myself, but at some point I’m looking to pick up on some more gold and I’m holding gold by ETFs in in in New York and and in South Africa. My wife moves money offshore, it’s dollars, she says I don’t want to hold dollars, I don’t like dollars, I don’t like Trump. So she buys gold and then the price doubles. Now she’s a trader, now she is so excited, she’s gonna trade away to work. It is the weird place we found ourselves in. Maybe live in interesting times. Part of those interesting times is that gold has suddenly found its way back onto the radar. I think we’re gonna see a lot more coming from. And to wrap and close everything. Oil prices not getting back to 60 anytime soon. We’ll get some relief on our petrol price, largely from Iran. I think the oil price is probably happy in the 80s, which yeah. I said that before, then it went into the 70s and then went to the nineties. So oil’s gonna move a lot. Even with war over, it’s gonna take time to get the oil market globally back to normal. So oil’s gonna remain painful for us. The elections are All meaningful and fun, but on the ground, slow to have real impact. Interest rates are the real thing to be watching. That is the canary in the coal mine in a real real sense. And that all brings us to whether it’s AI or canaries or oil, gold has placed these days in portfolios, which, as I said, to me is a weird thing to say, but it is a statement. I have it in my portfolio, so it’s wild. It’s crazy days out there. Ladies and gents, thank you very much for your time this morning.