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SIMON BROWN: I’m chatting now with Izak Odendaal from Old Mutual. Izak, always appreciate the early morning. A bit of a wild week last week with Davos – most notably Trump’s speeches, threats around Greenland, which he ultimately backed it down on. I want to touch with the first point. I mean, he was threatening tariffs on eight European countries because they disagreed with what he was trying to do with Greenland. Importantly, he signed a trade deal with them just last year. This perhaps is the crux of it, where even a signed trade deal from President Trump at the heat of the moment counts for nothing and leads everyone in a head scratching space?
IZAK ODENDAAL: Yes. I’m not sure what to say. That’s kind of the craziness of the world we live in now. I think to an extent he has now, since last week, also threatened tariffs on Canada, on South Korea. there may be one or two more. So obviously that is his go-to threat. And I think at some level that threat also loses its credibility. Of course, we are all waiting still for the Supreme Court to rule on whether he is allowed, under the Emergency Economic Powers Act, to impose tariffs, in this way rather than the traditional route, which as you go through Congress and you get approval and obviously Congressional. Although he has majority support in Congress so he could get some tariffs. But obviously, you know, the various representatives there will look after their constituencies and so on and will not go massively the sort of shooting of the hip tariff increases on countries for political aims rather than economic aims, which is always what tariffs have been about. It’s about protecting an industry or getting tax revenue, rather than trying to subdue your friends or foes into giving in to what you want.
SIMON BROWN: If I look at market response – and let’s start with dollar and gold – gold at highs, dollar weaker. And then when Trump backed down on it gold carried on moving higher, the dollar carried on moving weaker. We remember Liberation Day from April of last year. But the whole Greenland thing perhaps was maybe a step further. And markets are perhaps responding differently in terms of there wasn’t a reversal when Trump did the reversal.
Read: Gold hits record above $5 200 as Trump dollar comments aid rally
IZAK ODENDAAL: Yes. Contrast that with the equity market, where there was a bit of a rebound and equity investors like the TACO idea that Trump will chicken out and therefore we are back to normal. But ultimately every time he does this, it’s a blow to the credibility of overall US policy making. And you’ve still got in the background questions around the Federal Reserve, the independence of the Federal Reserve, who’s going to be the next Fed chairman, et cetera.
IZAK ODENDAAL: So I think global investors are just looking at this picture and saying, you know, we used to think that the dollar was risk-free. It obviously is not. You know, you still have the biggest capital markets in the world backing your dollar. And that’s not going to go away. But is it risk free? Is policymaking completely sensible? Clearly not. And so we need to adjust our pricing of the dollar. So the dollar is weak, it’s still even weaker this morning but last night Trump said that he was comfortable with the weaker dollar. And obviously, gold is sort of the inverse of that. If you’re fleeing the dollar, you go into gold.
Read: Trump deepens dollar woes, saying he’s not concerned about slump
SIMON BROWN: And one of the things is you made the point, the biggest capital markets. Investors the world over can talk around the change of risks and the like within particularly the US Treasury market to a degree, their equity market. But the US Treasury market is about as big as the rest of the global treasury market. I mean, investors are sort of stuck between a rock and a hard place. They can’t really leave it if you’re a significantly large investor.
IZAK ODENDAAL: No. And no other country has those kinds of markets. China is second, but China obviously has capital controls. So you can’t just go in and out. Europe collectively is quite big. But of course Europe isn’t a single market. It’s made up of several small- and medium-sized markets. So the US stands alone in terms of this massive market. If you’re a massive investor, that’s where you need to be. So I don’t think this is kind of a complete sort of rush for the exits by global investors. It’s a repricing saying, what kind of price should I accept to put my money to work in America, which has obviously still got the greatest companies in the world, is still getting a pretty decent yield on your corporate bonds, your government bonds. But am I being charged the right price for that investment that I’m making? And obviously, the dollar is sort of the crucial link between international investors and US domestic markets.
SIMON BROWN: Absolutely. And it’s that repricing I suppose, If we bring it home to South Africa, gold is at new all-time highs this morning, above $5 200/oz in the futures market, PGM are running. We don’t have much silver here, although we do have some copper. That’s certainly good for our market. It’s good for our fiscus. Maybe we get some unemployment from it. The flip side of the coin, and you make the point, is that we’re a small economy and as trade barriers go up, we’re going to suffer and we’re not at the table. India and EU signed a trade deal yesterday. We’re too small to really compete in that space. So we win in one hand. But we’re going to get buffered on the other.
IZAK ODENDAAL: Which I suppose is your glass half full or you glass half empty. I think in the short term, precious metals running obviously is a massive boost to our economy at a time I think when things were looking better anyway. But this is just sort of a nice bit of support on the way. But yes, in terms of trade, it’s still a difficult world. We’re still trying to negotiate that deal with Trump, and along the way we keep doing things to antagonise the Americans – like these naval exercises with Iran. So we’re going to have to box clever in this kind of world. It’s not the old world. It’s a new geopolitical world. Mark Carney, the Canadian prime minister, spoke at Davos about a rupture in the geopolitical order. South Africa needs to play its cards well. It needs skilful diplomacy. I’ll leave it up to the listener to decide whether we are, in fact, good at, foreign policy in South Africa.
SIMON BROWN: [Chuckling] We’ll leave that there Izak Odendaal, Old Mutual. I appreciate the early morning insights.
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