Bruce Whitfield:
Graeme Korner from Standard Financial Markets is with us and the business confidence figures that came out today took no prisoners and doesn't look like it is going to take any prisoners for quite some time Graeme, very positive.

Graeme Korner:
Very positive and I think as the surveyors said, that comes in spite of a two percent increase in interest rates but clearly South Africans focusing on the good news, infrastructure spend, strong GDP growth into 2007 and the rand has gone from six to 7.20 or thereabouts and I think that has given a lot of industries a big reason to celebrate. So yes, I think South African business is probably in better shape now than it has been for decades.

Bruce Whitfield:
And hypothetically speaking, the oil price, if it sustains relatively low levels, let’s say below $55 a barrel, that has got to be good for our inflation outlook and it has got to be good for the trade deficit and all-round better for all of us.

Graeme Korner:
Very much so, I think the one thing we must just keep in the back of our minds is oil is a commodity in itself and we have seen a lot of volatility in commodity prices in these first two weeks of the new year and late last year and you know if we are going to get the copper price coming off — nickel as I said rallying very hard in the last two days — but if commodities rust away as well, then you have got to remember that we are losing on our export side but we are clearly gaining on the oil that we are importing so it will probably not be a clean gain.

Bruce Whitfield:
The copper price, it is an interesting one because copper is a commodity which is generally seen around the world as a leading indicator because if demand for copper drops, it is an indicator that industry looks at it and says, hold on a second, we don't need as much of the metal as we thought we might and it is an indicator that perhaps economies are not growing as fast as perhaps they were and we have seen the copper price down what, 20 percent in the last three weeks?

Graeme Korner:
If you go back on the London Metal Exchange, it hit a record of I think $8800 a tonne and I think early in December we were around $6300 and $6400 and a few days ago it got hammered down to $5500 on what is thought to be index rebalancing.

There are certain commodity industries that have been reconstituted and as a result of that a little bit of selling in the copper market. I think one can explain it away in terms of there is temporary pressure as a result of maybe the Chinese being out of the market and we cannot ignore the fact that stockpiles on the LME have gone from about, if memory serves, 50 000 tonnes say eight or nine months ago to almost 200 000 tonnes.

Now granted it is only four days supply but the stockpiles are growing and I think that is what people are really focusing on and very important from a copper point of view is China, which has been the big swing factor in the last few years but the housing market is a big consumer of copper.

There has been a lot spoken about the housing market in the United States slowing and new housing starts slowing and if you take a million new homes for example out of the United States, housing starts numbers and I think it is 400 pounds per house you know those things have an impact.

So while people are explaining it away and saying these are temporary factors and the Chinese will be in after the New Year in February, I think one cannot get away from the fact that in spite of supply and demand being very tight, it looks as though some of these commodities actually want to drift a little bit lower.

Bruce Whitfield:
I saw a piece on Bloomberg today coming out of Australia, Goldman Sachs there downgrading their view on copper. They are saying it could go down as much as 18 percent in the next couple of months.

Graeme Korner:
Yes I think quite a few people are saying that maybe the first half will be quite soft and then the second half the balance will restore itself and I think a lot of people feel, and we have spoken about it at length as well, there is probably an element of speculation in all commodity markets and maybe that is why copper is coming from $8800 to let's call it $6000.

The key question is: where will it find fundamental support, where will supply and demand be more natural and from that level then we can launch fresh runs, let's call it that. But you know when you look at a company like BHP Billiton on I think an eight times forward multiple it is not expensive. As much as we would all like to see the oil price fall drastically it is probably not going to happen and yes companies like that are actually looking quite interesting at these levels.

Bruce Whitfield:
Having a look at the interest rate announcement by the Bank of England today, one out of 50 economists in the United Kingdom actually called it right and 49 got it quite frankly wrong. Why is it that in an economy like the UK which is far more predictable than our own, which is far more easily understandable than perhaps our own, did they get it that wrong?

Graeme Korner:
I think people are possibly underestimating the inflation that is coming through in the UK. They are above their target rate which is two percent and we will only get the minutes in two weeks time but one is getting the sense that the Bank of England is very worried that inflation is starting to rise quite rapidly.

We were talking earlier about wage increases and you have seen for example in the US, I think December wage increases saw a 4.2 percent rise and that is all inflationary so I think the Bank of England is very cautious about inflation but also what we were saying earlier they have been expressing concern about high indebtedness levels and consumer spending may be a little bit out of hand and maybe it is a pre-emptive strike on that but while a lot of people were a little bit muddled up on the outlook for interest rates, suddenly the economists are starting to say well maybe the Bank of England is going to be more aggressive than we thought and five and a half year highs could even be increased.

Bruce Whitfield:
We are going to be talking to Liston Meintjes from Metropolitan Asset Management in a moment about private equity but there have been a number of deals announced already this year, three or four in the bag already.

Graeme Korner:
I think it will be very interesting to hear what Liston has to say but I think for a lot of brokers and investors who traditionally invest in listed equities the theory is private equity companies bring companies to the market rather than delist them with a view to bringing them back a few years later.

So I think we seem to be moving into a new paradigm but again the UK authorities, we have spoken about it before, expressing concerns about the high level of private equity, the delistings, but most importantly about the high degree of leverage that has been created in these deals.

Bruce Whitfield:
And when you talk about the high degree of leverage, you mean?

Graeme Korner:
Well maybe putting down where in a listed company you would use a lot less debt. Maybe for every R100 worth of debt you have got R100's worth of equity and typically private equity firms would use very different ratios.

Bruce Whitfield:
They are borrowing a lot of money to try and grow businesses.

Graeme Korner:
Correct, they might borrow R80 for every 20 that they are investing

Bruce Whitfield:
Graeme Turner from Standard Financial Markets is our market commentator.