From Gary Booysen, Financial Editor...

Dear Money Morning Reader,

You can’t help but love this country. Last week, we highlighted the National Treasury’s plan to wipe 40% off the JSE by reclassifying seven blue chips. Since then we’ve had a call by Julius Malema to nationalise the mines. (It’s thought that this’ll wipe out around R56bn of market capitalisation!) Despite this, markets held firm and the country trundles on. But where are we trundling to?

The fundamental economic argument behind international trade comes down to a little known idea called “competitive advantage”. First, a little history. Way down deep, in times gone by, there lived a group of thinkers called the Mercantilists. They believed that international trade was a zero sum game. They thought if you traded with someone there would be a winner and a loser, and the winner was the one with the most gold at the end of it.

Luckily, Adam Smith and a couple of others arrived with a groundbreaking theory. In its simplest form, it said it’s much better to focus on what you’re best at and then just buy the rest. If you take a stroll through the mathematics, you’ll find they’re correct.

Their thinking changed the world’s approach to international trade and culminated in the successful completion of the Uruguay Round, which transformed The General Agreement of Tariffs and Trade (GATT) into the World Trade Organisation (WTO). This agreement, with a single stroke of a pen, raised standards of living across the world by lowering trade barriers and allowing countries to specialise in what they do best.
 
It’s amazing that it took us 3,000 years of recorded history to work this out. It is, of course, the cornerstone of civilisation. It’s a concept we’ve been practicing since Fred Flintstone decided to do the hunting and let Wilma get on with the gathering. The division of labour is a wonderful concept. It allowed the butcher, baker and candlestick maker each to see their beef sandwiches at night!

But how does all this affect us in our highly developed and specialised modern economies? I once read a quote describing what it means to be British. It said:

“Being British is about driving in a German car to an Irish pub for a Belgian beer, then travelling home, grabbing an Indian curry or a Turkish kebab on the way, to sit on Swedish furniture and watch American shows on a Japanese TV.”

And yes, trade has offered us all this and more. The tight integration of trade has also led to the rapid spread of the banking crisis. With the lowering of trade barriers, countries began to give up their cowardly cowering behind import tariffs and quotas and in the process, found that they were one global nation. So who wins in this global nation? Well, everyone wins but, unfortunately, to share in the spoils, you need to provide the world with the produce of your newly efficient labour. America has its technology, the Asian Tigers have their cheap manufacturing and Britain has (although I might get sour looks for this comment – especially with major multinational’s moving their head offices from London to Switzerland) its banking. South Africa has, until recently had its commodities. But we can’t go on selling off our natural resources. We need to find our speciality. Maybe we’ll focus on IT with the landing of the Seacom cable. I don’t know, but whatever we focus on, we need to get on it. We can’t just be the proud owners of the world’s first SMS banking scam.

Until next week,

Gary Booysen

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Turning to the markets...

The JSE all share index closed up 2.67% yesterday. The gold mining index is 3.71% higher. Resources shot up 3.57%. Banks and financials added 1.7% and 2.25% respectively. Industrials gained 2.04% and the platinum mining index ran up 3.43%.

London’s FTSE100 closed up 2.57%. The Dow Jones gained 3.07% and the Nasdaq added 1.84%.

Tokyo’s Nikkei closed 1.42% up. Hong Kong’s Hang Seng climbed 1.62%.

Brent crude is currently trading at $63.56 per barrel.

Spot gold’s trading at $936.94 and platinum was last quoted at $1,162.50.

And here’s how the rand is performing against the major currencies:
R/$8.16
R/£13.34
R/€11.49