Re: dreamland

["Patrick Bond" <pbond@xxxxxxxxxx>]

I know what you mean, sitting in Johannesburg and glancing at a
recent African Development Bank investment report. These chaps expect
returns on their equity stake in an infrastructure privatization fund run by a
commercial bank here, along the following lines:  40% of projects at
35% Internal Rate of Return; 50% at 30% IRR; while assuming 10% of
projects to fail entirely. Those returns are expected in US dollars,
with a steadily-declining local currency, and moreover it's on the
first 7 or 8 years of major long-term infrastructural investments
(usual payout on which stretches 30 years).

Greedy pigs. These returns will be sought through municipal worker
retrenchments and through cut-offs of basic services (and no
extension of systems) to low-income folk. There is, however, lots of
good resistance to retrenchments and to exploitative pricing of
municipal services -- regular mass marches by the municipal union and
fascinating (at times tragic) protests that have included burning ANC
municipal councilors' houses (recently, three incidents following
mass supply cuts due to non-payment).

Anyway Doug, just to show that when NY investors flap their wings a
bit, bidding up the global opportunity cost of funds, it causes
hurricanes in townships across the globe.

> Date:          Sat, 11 Oct 1997 11:02:49 -0500
> Reply-to:      dhenwood@xxxxxxxxx
> From:          Doug Henwood <dhenwood@xxxxxxxxx>
> To:            PEN-L@xxxxxxxxxxxxxxxxxxx
> Subject:       dreamland

> According to a poll by Montgomery Asset Management, U.S. mutual fund
> investors expect 34% annual returns from their stock investments over the
> next 10 years. Since average returns are in the 7-10% range (themselves
> considered inexplicably high by canonical financial theory), one suspects
> these folks are in dreamland. And that's not even figuring in mean
> reversion or excess volatility, which suggest that after 15 years of
> extraordinary returns, 10 more years of even more extraordinary returns are
> highly unlikely.
>
> Doug