How To Profit From The Inevitable Descent Of South Africa

By Chris at www.CapitalistExploits.at

Today's missive comes to you from our head trader Brad McFadden. Enjoy!

It isn't hard to make money in markets if you have studied history for long enough. It just seems that humans do and think the stupidest of things. But often making money from such stupid behaviour does not make one do the "happy clapper" thing.

I cannot believe that this is happening, yet I knew a long time ago that it was inevitable. Chris has written about it in the past, promising it was coming.

I lived in South Africa for 10 years (1997 to 2007) working for a merchant bank (Rand Merchant Bank) as a prop trader. I toured the country and fell in love with it (albeit had some sort of curious fascination for the place).

During the time I was there Mugabe started on his insane path of kicking white farmers off their land... and we all know what happened there. If you want some pictures...

Some things are just so easy to see happening. My first real shock was in 2002 when Mugabe got a standing ovation at the World Summit in Johannesburg and Tony Blair was booed.

This at a time when white farmers weren't just being kicked off their land, but blatantly murdered. Let's leave the gory pictures out:

And when it is all said and done, Zimbabwe went from the "bread basket of Africa" to this within 15 years (United Nations aid):

But my experiences were not just limited to Zimbabwe.

I travelled reasonably extensively into Sub-Saharan Africa. I was amazed at what the African cities would have looked like in the old days and what they looked like when I was there. No picture is an exaggeration!

This is the grand Hotel in Beira, Mozambique — before and after:

As I travelled through Africa, this incredible sinking feeling hit me... Eventually the Southern State of Africa (South Africa) would revert to this. It was just a question of time. I was hoping for a miracle, for this to be averted as miracles do happen sometimes. Perhaps the only miracle was Nelson Mandela. There was hope with him but that is all gone now.

Now, there are two sides to me. The human side, which is of the opinion that what is happening in South Africa is totally wrong. But that is just my Western/Christian values coming to the fore.

Then there is the clinical investor side to me. What is happening in South Africa (and going to happen) is neither wrong nor right. It is just the way it is. Now, how can I profit from this macro trend?

So if white farmers are kicked off their land without compensation, who really loses (ex the farmers)?

Ok, who really owns South African farmland? Here's a hint:

So who is going to pickup the debts (mortgages) that white South African farmers have attached to their land when they get kicked off? They walk off with nothing, so there will be no way that the banks will be able to have any claim with them. I don't think the new "owners" will take over their debts.

So either South African banks take it on the nose and have their balance sheets wiped out (i.e. the banks would collapse)... or the South African government will have to make good on the debts that are owed to the banks.

But where does that money come from? Issuing new debt (printing money).

And who will buy that and at what price? It would come at a huge price. And if South African bond yields skyrocket, what do you think will happen to the cost of capital in South Africa? Interest rates will go through the roof.

And what effect will that have on real estate prices and on the broader economy? I think you are getting my train of thought.

The experience from Zimbabwe "land grabbing", which started in about 1999:

In short, in order for the expropriation of land from white South African farmers without compensation to "work" there, by "definition", has to be an economic collapse of GFC portions. There is no other way for this to play out. Well, unless a miracle happens.

We invest when the odds are firmly in our favour of not being wrong and when the payoff is huge. We don't invest on the hope of a miracle.

We won't get into the specifics of the trades that we're employing at Insider, but the way I see things, I will be very disappointed if we don't get at least 5:1 payoffs from these trades within 5 years.

It is going to be a huge trade and we expect to make a "decent hourly rate" from it. But it won't make us happy (remember, Chris grew up in South Africa so he's more than a cursory interest too). It will be the most unhappiest trade we ever made!

- Brad

"Never attribute to malice, that which can be adequately explained by stupidity." — Robert A. Heinlein

--------------------------------------

Liked this article? Then you'll probably like my other missives on

this topic as well. Go here to access them (free of charge).

-------------------------------------

Comments

BetterRalph Mon, 08/06/2018 - 06:17 Permalink

if you are chasing me off my land, the water is going to get poisoned, the land will get sterilized, and the structures burned to the ground by my own hand. You will never be safe there either.

keep the basta… BetterRalph Mon, 08/06/2018 - 07:00 Permalink

@betterralf

Sure spread the hate. Kill their kids too, why not, take yours like the top photo away.

the white farmers say they bought the land way back and have been good farmers ever since and employed the dark persons. 

Why do these excellent very productive farmers have these huge debts? 

Looks to me like they have mortgaged up and squirrelled the cash away.

so salt the land you say betterRalph, and let the banks with your huge mortgage collapse and the economy collapse.

well played kindly white men? 

In reply to by BetterRalph

Bubba Rum Das keep the basta… Mon, 08/06/2018 - 12:21 Permalink

@ Keep The Bastards Honest

"Sure spread the hate. Kill their kids too, why not, take yours like the top photo away."

Well, since you seem to be a 'man of color', here's your chance to help out & be a successful farm investor in South Africa all at the same time!

There is a social system in South Africa that will treat you fairly, you will be dealing with a fair & honest government w/ almost no corruption & also be eligible for government subsidies & favors!

Plus, the S.A. government tells us that the crime rate & energy/ water costs are extremely low!

You can only succeed, my man! Dive in, take the plunge into 'The Rainbow', as they call it!

In reply to by keep the basta…

bookofenoch Karl Marxist Mon, 08/06/2018 - 15:36 Permalink

Sorry.  I’m with the salt spreaders.

 

spike the tractors.  Poison the land and water.  Burn the buildings.  Slaughter the animals.  Rip out and bend the irrigation.

 

leave nothing but destruction, and by so doing, discourage other thugs from murdering the rightful owners, and stealing land and businesses.

 

read “Small Boat to Freedom”. White South African sells all, converts to gold and refugees to America on a 31 foot sailboat.  He saw the writing on the wall back in ‘87.  

In reply to by Karl Marxist

messystateofaffairs Mon, 08/06/2018 - 06:33 Permalink

It's not what is happening to South Africa that's amazing, what's amazing is that the inevitable took so long. Kind of like the American collapse and probable geographic division, you know its going to happen, but when is the thing.

SoDamnMad Mon, 08/06/2018 - 06:46 Permalink

I am wonder and I hope it is true (Looking at the accelerating rise of debt around 2005) that the farmers saw what was happening in Zimbabwe and figured it would happen in South Africa as soon as Mandela was gone.  So they borrowed and have salted that away outside the country.  They are pretty smart people and figured no one had any money to buy them out, that land would be appropriated without compensation, and that banks wouldn't (be) allow large sums to be moved out of the country.  Hence borrow from the commercial banks then park the money in European banks. 

Double whammy to have capital flight and falling production. 

overmedicatedu… Mon, 08/06/2018 - 07:31 Permalink

a new boom industry..drones that are weaponized..under the second I am free to do so..the progressives think there is safety behind armed thugs and gated communities..no longer

nomad943 Mon, 08/06/2018 - 08:14 Permalink

I wonder what the effect on metals will be. Since most of the worlds metals, gold, platinum is mined there would general chaos spill over into the mines or would the army protect production. Do they have that much sense left?

Village-idiot nomad943 Mon, 08/06/2018 - 12:44 Permalink

A fairly high percentage of the police and army is still white.

Most of the higher ranks are still white.

I'm not sure they'll stay in RSA much longer.

But if you look at the history of communist governments, you see that the government will enforce peace in order to keep production of natural resources going. Of course, we all know what'll happen eventually, no capital will be reinvested and all industries will grind to a halt (Just like Venezuela).

In reply to by nomad943

flyonmywall Mon, 08/06/2018 - 08:36 Permalink

South African mine production has been going down for years. There are some rare earth metals and gold that are mined there, but the top rare earth metals producer is China.

 

Charvo Mon, 08/06/2018 - 08:37 Permalink

It sounds like a short trade on the South African stock market with a long trade on the country taking on these white farmer refugees.