Podcast: Hard, but necessary

Simon BrownJSE Direct, Latest

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Lockdown T-1 day

Will lockdown hurt the economy?

Yes it absolutely will. Exactly how much we have no idea, but our economy is largely shutting down for three weeks (at a minimum). The impact too GDP, business (small and large but especially small) will be huge and right now is not quantifiable.

How do we pay for it?

We print money and take on state debt. Is this bad? Sure, under normal conditions. This is not normal conditions. This is a global emergency and it requires drastic measure. The extra and more expensive debt and more cash printed is all bad, but right now saving people and the country and its people takes priority over the economy. I know a broken economy is going to hurt, but no country or no people would make an economy moot.

One point is that if we print money and run our debt higher, we’re not doing it alone as a country, so the impact may be muted as all countries end up with way worse debt to GDP levels and weaker currencies making it all moot.

Will Moodys downgrade us on Friday?

Probably, maybe? But at this point nobody cares. Really, nobody does. The entire global economy is at risk of junk status. Also the local market and government bonds are way worse off than what a downgrade would have caused.

Will lockdown be only three weeks?

Initially sure. But most health experts say that after the initial lockdown the economy opens again, the virus returns and we go into another lockdown and this process continues for months if not the rest of 2020.


Pretty much everybody. Especially those with debt and high fixed costs. Tourism and entertainment industries extra especially.

No real winners but food retailers and to a degree food producers will remain operational but likely with higher costs from their implementing COVID-19 restrictions and protective measures. And we’ll be shopping less and spending less.

Example; Shoprite to pay shop floor and distribution staff R102 million ‘appreciation’ bonus. 

Commodity prices are flying as mines move onto care and maintenance. As such miners are also have a great few days. But if they don’t get back to mining soon, they’re only selling stock piles and that eventually runs out.

Have we hit bottom yet?

I do not think so. Price action is moderately suggesting we have. But I suspect the markets will get solidly spooked when we start seeing the economic data. We’ll get data that will be the worst every recorded, it’ll take a strong market to not freak about that. Further the market seems to be thinking COVID-19 will be over in the next month or so. I think COVID-19 will potentially remain a problem well into 2021, we’ll just be better at managing it.

What’s happening to dividends?

We’ve seen a number of companies delay their dividends by up to six months. They’re protecting cash in very uncertain times. At this point it has only been delays in payment, but at some point we may start seeing already declared dividends being cancelled. I have no idea how that process works, I assume the board has the right to reverse a decision they took early about dividend payment? Further we’re seeing results coming out and dividends being passed as boards protect their cash. I am happy with this, but I don’t need the dividend income, many do.

What am I buying?

ETFs, ASHGEQ. Sure lots is cheap, price wise. But is it offering value? We can not know as we simple do not know how this plays out. I have made two purchases so far in March, doubling my usual monthly spend (excluding tax-free). But I am not going in boots and all.

There will be lots of time for buying stocks. We won’t wake up one morning and suddenly everything is back to pre-crash levels. It’ll be slow and volatile with a recovery to the peaks maybe as long as 4 years, potentially as short as two. We’ve got lots of time to buy, don’t panic buy.

Is US$2trillion a lot?

Nope, US Federal national deb in 2019 was some US$22trillion. Staggering numbers, but the proposed US ‘package’, while large is not that seriously big in total terms.

Any good news?

Our government is doing this right. Not all countries are, some are doing a horror job. We’re not.

Load shedding is gone for now. With the economy shut down demand for electricity has collapsed and as such Eskom can cope with the reduced demand.

Will local interest rates drop further?


Further SARB has announced “As a further measure to add liquidity to the market, the SARB will commence a programme of purchasing government securities in the secondary market.”. The R186 is already 1.5% lower on this news. The SARB is essentially creating liquidity for those who want to exit their government bonds and receive the cash.

How do they pay for this? They print money, that weakens the ZAR, but everybody is printing so that moot. It may spike inflation, but ain’t nobody shopping, so maybe that also moot. Perhaps the best time ever to print money?

Crisis of leadership

A number of political leaders being exposed. But also in business. We essentially had eight days of warning about the lockdown, and anybody looking at what was happening in Italy, China and the like should have seen lockdown coming a mile off. But now leaders are stuck in the headlights, no plan, no idea, putting staff at risk.

Should the JSE close down?


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JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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