We read this quote recently from someone that covers the platinum industry in South Africa. This quote specifically referred to the cutbacks in production that producers were forced to rethink by the Government, in spite of economics which dictate that these, and other , cuts take place. Essentially, when looking at the platinum industry in South Africa, and elsewhere, any analysis is torn between the pragmatic and the dogmatic. Government represents the dogmatic side, arguing for full employment, and a maximization of indigenous mineral rents. Industry, on the other hand, represents the pragmatists which emphasize profit and shareholder value maximization. In a perfectly capitalistic world, pragmatism would far surpass dogma, however it would appear that the environment in South Africa dictates otherwise. As we have discussed in earlier blogs, the capital markets have weighed in on how they view this particular battle playing out in South Africa.
This battle of dogma versus pragmatism got us thinking about the Fed and the effectiveness of the various QE’s. The dogmatic Fed believes that low interest rates are the single greatest cure for what ails the global economy. In their mind, low rates: drive asset prices which in turn drive spending which in turn ultimately drives employment gains. The pragmatic Fed also understands that, above all else, their greatest influence must be manifest in general psychology (business and investor). However, the pragmatic Fed also probably understands that this influence is tenuous at best. Increasing amounts of the same medicine, somewhat counter-intuitively, undermines their ability to continue to affect this psychology. This diminished influence will prove critical, particularly in the event of another six sigma event ( you know, the ones we get every few years).