Zuma’s Pyrrhic Victory

“The men of Ammon and Moab rose up against the men from Mount Seir to destroy and annihilate them. After they had finished slaughtering the men from Mount Seir, they helped to destroy one another. No one escaped.

Throughout history there have been many occasions when a nation would win a war but lose the peace that followed. A ‘Pyrrhic Victory’ goes one worse. It is ruinous and rapid. In the process of winning a key battle against the Romans at Asculum in 279 BC, Pyrrhus, the King of Epirus, lost the flower of his army. He brushed away those sent to toast his win:

Congratulations were unwarranted. The battle was better not fought. Such could be the fate of South Africa’s rising political star, Jacob Zuma. On December 17, 2007, he secured a stunning victory over the country’s State President, Thabo Mbeki, for position as President of the nation’s major political party, the African National Congress (ANC). It set Zuma up for a potential power play with the President of the country who was still looking to retain BOTH roles. The latter’s term of office – barring calls for dismissal by a two thirds majority of MPs - still has 18 months to run until mid 2009.

Sadly for Zuma, his victory coincided with an attack from a state institution, the National Prosecuting Authority, which could ultimately be his undoing. They threw the book at him with a clutch of misdemeanors stretching back over a decade. Barring a miracle he faces a chain of events which can dash his hopes for leadership and send him to jail for a very long time. Resort to legal obfuscation may prove his downfall. On the other hand, telling the truth could expose every thing and every body. That way the country would experience a general ‘catharsis’. Zuma would serve a minimum sentence – short enough to allow him to become President before mid 2009. Will his lawyer let him do it? Maybe he won’t. If both refuse, the truth will eventually still out, but in circumstances which lead to the self-destruction of all involved. The definition of ‘all’ could cast a net far wider than any suspect.

In this article – No. 81 – the writer seeks to roll out a credible version of what could happen – to Zuma, the ANC, and the country. It seeks to cover political and economic changes, both in the immediate future and longer term.

Far from being concerned at the growing internal conflict within South Africa’s governing political party, the writer is excited and believes there will soon be cause to rejoice. He is prophetically convinced God is intimately involved in exposing and bringing down a major spiritual stronghold in the area of corruption – not just in government but throughout the nation. Restoring integrity to the manner in which public institutions conduct their affairs will set an example. No longer need children listen to a parent rail against the dishonest behaviour of those in authority. Businessmen will likewise have no further excuse for behaving in similar fashion. Every aspect of life could be affected. Instead of fearing the signs of turmoil, South Africans of all races and classes should welcome the prospect of positive change. It comes at a time when long-term world economic trends favor much of what the country has to offer – its precious metals, minerals and resources.

Without in any way wishing to disparage the significant achievements notched up by the Mbeki government’s present economic team in the areas of growth, fiscal discipline and balanced budgets, one has to acknowledge that many of the benefits have been frittered away. Five serious policy errors were made which allowed this to happen.

1. It has been estimated that the Mbeki regime wasted at least R50 billion on an ‘ARMS DEAL’ – buying submarines, frigates, and fighter jets. It made a mockery of attempts to cap spending elsewhere, first in delaying permission for ESCOM to expand, second for blatantly refusing to consider an ‘income grant’ for the poor. The latter suggestion came from the party’s left wing. While the writer disagrees in principle with the concept of an income grant, one cannot simply ignore the problem of endemic poverty.

2. The regime’s over-emphasis on ‘AFFIRMATIVE ACTION’ in the absence of ‘mentoring’ and adequate training, led to the promotion of incompetents into positions of power and encouraged the emigration of many young whites with much-needed technical skills. Unspent budgets in government departments are glaring proof of a lack of capacity to implement.

3. Mbeki described criticism of his AIDS and CRIME strategies as ‘racist’. His reaction may have stemmed largely from inherited feelings of rejection. These made him overly sensitive to any form of criticism. While understanding the pain of his youth and the lack of any relationship with a real father, it in no way excuses the implementation of strategies which were later proven foolish and destructive. His view on AIDS made him an international laughing stock and, in the opinion of some, caused the death of thousands unable to access anti-retrovirals. Instead, the country’s controversial health minister – accused by the Sunday Times of being ‘light-fingered’ in her youth - was urging AIDS sufferers to eat beetroot and garlic! Mbeki defended and protected her.

On the topic of high crime rates, the Minister of Safety & Security, Charles Nqakula, told whites who complained, to EMIGRATE! Meantime the country’s President went overboard in an effort to protect his friend, Jackie Selebi, the Commissioner of police, from being charged with fraud. Instead he suspended Vusi Pikoli, the head of the Scorpions who had charged the commissioner of police, but for reasons as yet unspecified.

4. Though relatively large amounts were spent on EDUCATION, the benefits realized have been disappointing. There were various reasons. They range from the enforced early retirement of skilled white teachers, to an inadequate pool of badly-trained replacements. Many of the latter lacked motivation and faced a school environment where discipline eroded after the abolition of corporal punishment. Teachers were often subject to violence. The disaster was compounded by strategies, such as ‘Outcomes-Based Education’, which have been proven ineffective elsewhere. Bring back the three ‘r’s, “reading, ‘riting and ‘rithmetic”, and proper exams!

5. Mbeki’s close relationship with the international world of banking and finance helped him focus on market-friendly economic policies. Tragically it also led him to establish friendships with the likes of David Rockefeller, Goldman Sachs, and JP Morgan. Members of GATA – the Gold Anti-Trust Action Committee – will immediately understand the extent to which an unsuspecting Black Government could be sucked into dependence on institutions which are prominent members of a so-called ‘GOLD CARTEL’. The latter’s recurring interventions in the bullion market have clearly been shown to have undermined the ruling price of gold over an extended period of time – certainly since 1994 – and all in an effort to protect the dollar. The cartel sought always to diminish gold’s perceived attractiveness as a store of value by regularly suppressing the price through covert interventions in the market. This and other strategies - like falsifying the CPI statistics, and therefore the true extent of Consumer Price Inflation - enabled central banks to pursue monetary inflation without being held to account.

A political change in South Africa could effectively break links with members of the cartel. It would make it possible for another government to promote a major ‘catch-up’ in the price of gold by throwing a spotlight on the institutions which prevented it in the past. This would include dismissing ‘advisors’ from the Bank of England and merchant banks like JP Morgan. A copy of GATA’s latest announcement is attached as Appendix 1. It appeared recently as a full page in both the Wall Street Journal and South Africa’s Business Day.

As Gold plays ‘catch-up’ with oil, copper and commodities, the South African Gold industry could experience a dramatic recovery. Over the coming decade production could conceivably rise by 50%, restoring the industry’s role as the nation’s most important employer of unskilled labor.

For the above five reasons the writer is optimistic that the changes triggered by a Zuma surge in popularity, provide scope for an overall positive outcome. The process may at times prove painful and embarrassing for those presently ensconced in positions of power- even for those seeking power after years in the wilderness. However, where authority has been abused for personal or party gain at the expense of a general public, ‘naming and shaming’ is an inescapable element of the process of reform. This is when the man in the street will observe and learn lessons too hard to forget – lessons which could stand him in good stead for the rest of his life.

NB: On the subject of JP Morgan and their membership of the ‘Gold Cartel’ which suppresses the price, note how quickly the bank made a play to ingratiate itself with Zuma by inviting him overseas. They have since become his official financial advisors. Note too how Tony Blair, the ex-British Prime Minister who, together with Gordon Brown, presided over the UK’s sale of half its gold, has since been invited to consult for JP Morgan. Zuma’s friends need to warn him about the dangers of falling into their clutches. They might be one better than Schabir Shaik, but not by much!

On the main page of this report – actually page 3 - headlines in bold capitals referred to Zuma, the ANC and Young Whites with pictures of Zuma and Mbeki above. These were followed by a series of sub-headings promising ‘updates’, beginning with a section on GOLD. The balance of this report will deal briefly with the ‘sub topics’ set out on page 3. These include the Rand, the Sub Prime Tsunami, the Dollar and Dow, Iran, Big E, and the writer’s latest ‘Pick Six’. After the implosion hitting world markets, the latter might temporarily have to be renamed ‘Kick Six’! Herewith then is the latest on GOLD.

There are a number of ways to measure and present gold’s performance on a chart, over an extended period of time. If one chooses a starting point which precedes the closing of the gold window by Nixon in 1971, the price would still be pegged at $35 an ounce. In report No. 80, published on September 28, 2007, the writer selected a chart which connected each monthly average for the price of gold for every month since 1968. The September 1980 average came in at an all-time closing high of $690. The record had stood unchallenged for 27 years. Then, for September 2007, the price of gold managed an all-time monthly AVERAGE closing high of $735. The metal had made its first attempt back on May 12, 2006, when it reached an intra-day peak of $730, closing back down by month end at $658, containing the average below $690. Gold’s September 2007 average of $735, eighteen months later, was therefore highly significant. No. 80 summarized it as follows:

“The writer believes that gold’s break above $700 marks the beginning of a MULTI-YEAR period during which buyers of GOLD will enjoy investment OUT- PERFORMANCE over most, if not all, competing choices.”

By the end of December 2007 and a mere month later, gold closed $100 higher at $835. The price then exploded and by January 14 had registered an intra-day all-time closing high of $914.

As world markets reeled and crashed in recent weeks, gold reluctantly retreated from its January 14 peak of $914 but, the technical significance of the metal punching through $850 cannot be over-emphasized. The price had capped the market for 27 years, ever since the spike of 1980. When an event like this occurs – after an initial run - one invariably gets a pullback to ‘test the break’.

The present case was to prove no exception. On Tuesday January 22 gold sank back to an early morning intra-day low of $849,50, prior to bouncing smartly back to $890 by close of day. That should be it. Now it’s off to the races.

Alan Greenspan famously boasted that if called to run the FED during the next ‘Kondratieff Winter’, he would know exactly what to do. The crash of 1987 gave him the opportunity he sought. It occurred shortly after his surprise appointment as Chairman. Using the weapons of central bank intervention, he rapidly turned the tide. Instead of a healthy economic downturn being allowed to run its course, cleansing the system of excess, he activated the pumps. The mountain of debt grew bigger. Each time the credit bubble threatened to pop he cut rates, printed dollars, injected funds, and blew the balloon. The bubbles multiplied.

The last was housing but by then the artful dodger had retired. The latest implosion of debt via destruction of the sub prime mortgage market is spreading fast to bond insurers, banks and the economy at large. With the collapse of the housing bubble, growing pressure on jobs, and consumer credit at record levels, the man in the street is increasingly reluctant to borrow. He would rather pay down debt. The effectiveness of rate cuts will therefore be limited. In recognition of the problem, Bush has already announced a $150 billion fiscal plan involving tax cuts and bigger grants to the poor. Bill Gross of PIMCO has said he believes the government’s fiscal response needs to be THREE TIMES BIGGER to halt the slide into recession.

For the second time in a week, the FED cut rates. Finally the market began to recover. “Helicopter Ben” Bernanke has been raised to a position of power for such a time as this. Recall his broadcast solution to a repeat of the ’29 crash? It was to drop $100 bills from a helicopter! If spending is not sustained, the debt bubble will implode and lead to depression. The authorities are well aware of the danger. Central bank intervention must gather steam and be coordinated on a world-wide basis. If the alternative is a measure of hyper-inflation down the line, so be it. All new acts of intervention will accelerate the flight to gold. To start with the prognosis may not be that clear. Initially long bond yields could slide, confirming fears of a deflationary recession, but watch the price of gold! At some point in the future, the extent of FED rate cuts will scare the bond market. Long term interest rates will begin to rise, signaling the return of inflation. Gold will then explode. Remember the writer’s forecast for 2011 - $3500 an ounce. Gold will lead the pack. Gold is the place to park one’s funds.

The remainder of the report dealing with specific gold and energy investments, especially South African, is for subscribers only.

The full report is 48pages and includes a full analysis of the South Africa’s political future as well analysis of the Dollar, gold, and equities.

You can find out more about becoming a SUBSCRIBER at Peter George’s website. The address is:

www.investmentindicators.com

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