Involving: a crazy Sultan invading Malaysia with his band of 200, a group of rebels called MILF, Venezuela has the best performing stock market in the world, hyperinflation, Implats thought it was being clever but it wasn’t, and Berlusconi. Again.

Good morning

The headlines:

  1. Did April 1 come early?

    Link: the Sultan of Sulu.

    The background: Sultan Jamalul Kiram, 74, a law school dropout that pursued a career in folk dancing, now on dialysis for kidney failure, felt ignored at a peace deal ceremony in October (a peace deal between the Philippines and the MILF rebels – no jokes). The Sultan declared that he “felt bad”, and “it was terrible”. So he had his followers (200 of them) invade the state of Sabah. They are now surrounded on Borneo island, refusing to surrender.

    According to his advisor:

    “All the Sultan and his family want if for Malaysia to recognise him as the Sultan of Sulu and North Borneo”.

    It just reminds me that strange phenomena in economics/business are not always the result of (unanticipated but) natural human behaviours. Sometimes, it’s just the crazy.

  2. Berlusconi.

    Link: honestly – how?

    Silvio got another conviction. This time, for wire-tapping – and it carries a one-year prison sentence. He still has that conviction for tax fraud with the four year prison sentence – which is on appeal. And there’s the outstanding sex-with-a-minor-prostitute case, which is expected to get a ruling before the end of March.

    Berlusconi:

    “It’s really impossible to tolerate a judicial persecution that’s lasted 20 years.”

    20 years in which he’s never gone to jail…

    I’m not sure that I understand his complaint: if you live in a country where you don’t go to jail until the appeals process is exhausted, and the statute of limitations frequently expires before said appeals process is exhausted, then what’s the problem?

  3. Zimplats.

    Link: you thought you were so clever.

    Impala Platinum had some thoughts around its indigenisation plan for its Zimbabwean operation, which involved it selling some of its stake to various indigenous entities/funds/trusts for $971 million dollars, via loans accruing interest at 10% per annum (see this Daily News piece).

    To be clear, Zimplats has a market value of around $1 billion (according to the article). Implats has an 84% holding in Zimplats, which it was going to reduce down to a 49% under the deal. That’s a sale of a 35% stake in a $1 billion business for $0.97 billion. Earning 10% interest per year! AND it was approved.

    Empowerment Minister Saviour Kasukuwere has since been publicly reprimanded for his approval, after President Mugabe said that Saviour “did not quite understand what was happening”. Saviour has now announced that he is planning on securing the 51% ownership “for free”.

    Regardless of your opinion on indigenisation as a whole – I think that profiting off empowerment doesn’t exactly send the best message about your good intentions… And it results in “leaving with nothing”.

  4. Venezuela’s stock market.

    Link: a thought…

    Venezuela’s stock market has generated a 209% return so far this year (ie. in 2 months).

    And there’s a bloomberg businessweek article that’s very surprised and expecting a turn in the tide – now that there’s less optimism or whatever. As though the only aspects that a stock market reflects are political and business risk.

    Which is rubbish – because there are some basic economic principles at work here.

    Venezuela has a fixed exchange rate with a growing disparity between official exchange rates and black market exchange rates. The government also engaged in a glut of social spending prior to the elections last October, so there is plenty of money about fueling inflation*.

    If you were a Venezuelan citizen in Caracas with money in your bank account, would you leave it in your bank account? You would not. You would say “I need to preserve its value by putting it someplace else”.

    And there are not a lot of options. You could buy currency on the black market, which would be indicated by a weakening of the black market exchange rate (oh yes! We’re seeing that!). Or you could buy shares on the stock exchange, which would have some protection against inflation. And that would be indicated by a sudden dramatic increase in the value of the stock market (oh yes! We’re seeing that too!).

    For the record – Venezuela has been on the hyperinflation hot list for years. And the above sound like a rerun of the same old hyperinflationary story. Next thing you know, there’ll be price controls.

    Oh yes. Those are already in action.

    If it looks like a duck and quacks like a duck!

    *And unlike the States, capital controls and fixed exchange rate regimes mean that money that goes into the economy mostly stays in the economy.

That’s all for now.

Have a good day.