Old Mutual as a measure of value

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Mamvura’s Market Minute —
It’s not often that Mamvura experiences schadenfreude, but watching Old Mutual drop in the wake of “Operation Restore Legacy” (ORL) was sheer delight, especially when you think about all the fools who bought at a 560 percent premium, when the currency had not moved by nearly as much on the parallel market. Old Mutual’s fickleness over the past two weeks should make people ask themselves whether this is a good indicator of “the rate”.

Just consider that the entire 390 point drop after ORL to an effective rate of $1,83 was conducted on a mere $669 505 of trades. Given the volatility shown in the OMIR in November, should our exchange rate really be determined by this? Historically, the OMIR was a good measure of the liquidity in the banking system, but what we are experiencing today is not what was seen in the years 2004-2008.

There remains a huge amount of liquidity in the banking system that is not the hands of the many and that is why we don’t have the levels of inflation Prof Steve Hanke and foolish South African journalists have been carping on about. That we have inflation is a given, but it is more of a “dual” nature, and the one that is inflating faster is being felt by those who have the capacity to afford it. Lower end inflation is single digits while inflation being experienced by high income groups is considerably more.

The question is, what should the rate be? We were pretty close to 2.1 when ORL took place, probably dipped back to 1.4 and are once again probably around 1.6. Let’s face it, there has been a very real parallel market for the better part of six months. The damage has been done and we should not be wasting valuable nostro balances trying to suppress it.

The solution to this all is that we should get beyond the “economic saboteur” clamouring and legitimise a market for “RTGS balances”. Immediately this would see off a class of vultures, ie those people who “lack discipline”, the non-productive speculators who make several hundreds of thousands a day.

It is easy enough to blame the creation of a skewed exchange rate on the fiscal recklessness of the previous regime. You can bet that the IMF is going to demand a floating rate as a prerequisite for monetary support. Sadly, what is most probable is that government will keep the 1.1 charade going.

As for Old Mutual, the recovery over the past few days has made him shudder once again. The unfortunate thing is that any upward movement gives currency traders the opportunity to “push the rate”. Maybe Old Mutual will be back to a 500 percent premium next week and those people will not look so foolish.

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