Thursday 30 April 2009

UNAPPEALING ACTION


Everyone has been certain for so long that Governor Mboweni would lop another 100bp off the repo rate today, that when he actually did so, nothing much happened in the markets. Another certainty for me is that central bank actions almost never have desired results. For example now that interest rates are being cranked down again are we to gather that inflation is under control and back in the target range – which for some unfathomable reason is not simply zero. There are quite a few folk who would dispute this idea, starting with some angry trade unionists who say that the food companies are making too much profit. If this is the case then instead of making a fuss they should rather be having a quiet word with whoever is running their pension fund portfolio to top up on Spar and Pioneer and Tiger Brands and share in these profits.
On the topic of inflation did you see that the one rand hike in the cost of buying a lottery ticket helped to raise the inflation rate via the category of “recreation and culture”? Leaving aside the question of just how so small a sum can have any impact on the overall cost of living for the man in the street (does Mr Average buy 100 tickets a week?) I would be interested to know if having a stock broking account is also classified as either recreation or culture.
The current craze among real economists is to spot the “green shoots’ of recovery that signal that the recession is over. There have been several of these sightings recently, but we bears are not impressed by the excitement that was caused when the “second derivative” of US house prices turned positive. I think this is easily outweighed by the idea that Chrysler is probably bust and that US shoppers are staying at home. The report that in 2009 the world will use 15% less steel than last year is yet another statistic that passes through the screens but it is quite a horrifying decline.
The first results of the so called stress testing of the US banks were sort of published in a way that was supposed not to alarm anyone. Nevertheless they reveal that several of these establishments have insufficient cash truthfully to call themselves banks in future. Concern and embarrassment all round until some compliant and gullible donors can be located. Taxpayers are always a good first call.
Almost as terrifying was the idea to strafe Manhattan with Air Force One in order to get good photos of President Obama’s new wings. Understandably they are pretty jumpy about low flying airplanes down there. The organisers of our very own presidential inauguration party are phoning around for prices on a spectacular fly-past over Pretoria at some suitable moment in the proceedings. However, given the length of the guest list and the banquet menu there may not be much money left for more than a microlight and a small flag painted on the pilot’s forehead.
The strength of the rand continues to amaze almost everyone except for exporters who are complaining that it is making life difficult. The best the government can do for them is to point out that the textbooks say that lower interest rates should weaken the currency and that the MPC are sure to smack them down again when they next meet after the IPL final. In the meantime perhaps we all should be turning out supporter’s kit to flog to the amazing crowds who are pitching up to watch the circus.
Am I alone in wondering what our old nemesis Umpire Darryl Hair would make of  the rubbish that is being passed off as legal bowling action at this tournament? The sub-continent already got the rule book edited a few years ago to admit some pretty dodgy stuff, now it seems that the whole chapter on bowling has been scrapped.
James Greener
30th April 2009.

Friday 24 April 2009

THE GOVERNMENT IS INVITED TO FOLLOW ON


I am becoming increasingly lonely. Not, let me hasten to say because I am all alone at my desk with a harbour master’s view of the shipping approaching Durban harbour. But because my views and opinions these days seem to locate me firmly in opposition to most prevailing trends.
For example I am still quite sure that the bear is not yet finished with the world’s equity markets despite the rather exciting bounce that most exchanges have enjoyed since the multi-year lows recorded just two months ago. Perhaps the fact that the JSE has achieved about the smallest recovery of any, may be because it was waiting for the outcome of the election. But the rand has been suffering no such doubts. It is now at a three year high versus sterling. I have noted before that money must be flowing onto the country. Can the World Cup be having an effect already? Here in the kingdom we are not hosting any Confederations Cup matches so maybe the excitement is passing me by.
Politically I have never been anywhere other than in opposition to the governing party. I believe that only the threat of losing their seat on the gravy train has any influence on those in power. This week’s election result has revealed the disturbing fact that the smallest ever proportion of voters is dissatisfied with what the current clutch of politicians are providing in the way of government. By the time of the next election in five years the present regime will have been in charge for almost half as long as the previous bunch but I am sure that we will still hear the legacy word being trotted out when blame needs to be laid. Mere improbability has never stopped a politician from claiming anything.
Two more public holidays and long weekends are upon us and I would guess that not a great deal will happen in the last three days of the month. What the bureaucrats can quite rightly claim, however, is that at least two of the holidays in April were not of their making. In fact they predate most regimes around the world. It has been a dreadful month for those who need to cover the overheads but reportedly retail activity has not been seriously disrupted by all these breaks. Unlike many years ago the pubs and bottle stores were thankfully open on polling day and a roaring trade was recorded. The victors had some serious partying to attend to.
Only a few companies are reporting lower earnings and reduced dividends. There is little evidence to prompt anyone to join me out on the lonely limb of concern that we are in for a long and deep recession. In the UK the government has responded to declining revenues with a budget notable for some fierce tax increases, some of which were disguised as punishment for cheeky bankers. Considerably more folk than the allegedly greedy City types are going to feel the pain of keeping civil servants in employment, tea and biscuits. As one press report noted, the fashion a few years ago of taking one’s company off to London for a listing may be turning out to be less beneficial than anticipated for the executives.
My grasp of Indian geography has been improved by the presence of the IPL on our cricket pitches. I am also fascinated by the market anomalies that are showing up where player performance is not being matched by their pre-tournament pricing. And have you watched some of the team owners juggling several cell phones at once presumably trying to keep in touch with the bookies?
James Greener
24th April 2009.

Thursday 16 April 2009

TAXES AND RANSOMS

It is now about six weeks since most stock markets were setting multi-year lows and the bears were riding high. The recovery since then has been almost as sharp as the decline and the price charts are displaying a fine example of a V shaped pattern. Excitable analysts are citing this as evidence for a similar recovery for the world economies and that the recession will be equally short lived. I don’t think so. Unlike the immediacy of share market prices, all the measures of economic activity take absolute ages to be collected, massaged and published. Officially determined slowdowns will be declared only long after those of us in the real world are trying to cope with the absence of credit, customers and clients. There are precious few signs that any of those are surging back yet. V shaped it is not.
I was fascinated to see that Goldman Sachs, that incubator of many of the US government’s economic brains, managed to sell $5bn worth of brand new shares. Apparently they located investors who are eager to participate in the anticipated wonderful profits of that will flow from that business once it uses the newly raised cash to pay off the state loan that it needed a couple of months ago to keep solvent. The new investors may have failed to notice the remark that the bank wished to resume its practice of paying breathtaking bonuses to the “talent” and that it could not do so until it repaid the government bail-out. I trust the talent will send suitable thank you notes to the new shareholders in due course.
Two of the more prominent issues on the globe these days are piracy and toxic assets. I am amused and delighted by the suggestion that there might be a joint solution to both scourges. That is to load a suitable vessel with not only these probably worthless pieces of paper but then to put aboard the originators and ratings agencies that once believed otherwise. Tow this tempting prize to the Horn of Africa and await developments. The ransom negotiations will take years.
Even 18 working days this month is too many and I am off to the ‘berg for a long weekend. The next edition of Tidemarks will be published under a new political regime here on the southern tip. Pre-election promises and manifestos are usually discarded as soon as the last ballot box is sealed so we have no idea what awaits us. Our likely new president is a jolly man much given to singing and dancing and I don’t recall any pictures of him sitting at a desk, writing or signing stuff. In this way his public appearances are much more entertaining than the rather metronomic side-to-side head movements of President Obama as he reads yet another beautifully crafted speech from the autocues. I do suspect, however, that even without the polished delivery, our new man is also strongly socialist and is confident that his plans for distributing money are far superior to the ideas of those who actually earn it. In other words expect to pay more tax.
The rand has been one of the strongest performing currencies in the last 6 months or so. This can only be because money is flowing into the country. Are we seeing the effect of people returning home after being forced to leave the rapidly slowing previous growth nodes like Dubai? Curious.
Sports pages carry a picture of a Bollywood personage soliciting my support for his team in the forthcoming IPL because they are “the best looking”. That pretty well sums up the dilemma I have with franchise sport. And there are Australians in most of the teams. Yes I know. There is an American playing for the Lions.
James Greener
16th April 2009.

Friday 3 April 2009

WHAT NEXT? ONE MAN ONE PASSPORT?


Now that is simply amazing. The main men and women of the world got together in London this week and came up with the number of $175.00. This is the amount, which if given to each and every living soul on this planet, will make the world’s financial problems disappear. I haven’t yet got to the part in the news story about where this money will come from, but I did note that Treasury Secretary Geithner warns that “progress is going to be uneven”. By this I suppose he means that the million million dollars will be handed largely to cronies and crooks who have already confirmed a cavalier and careless conduct when caring for cash. Those of us with savings and a tax number should probably not be watching for a cheque in the post. Rather we should prepare for ever more evil methods to use the latter to white-ant the former.
London was also the venue for anyone with a cause, a silly face mask and time on their hands to run about the streets of the City looking for golden geese to slay. I think that it is something of a duty to society for those with time between lectures, which the public have helped to pay for, to raise awareness about issues that someone else is trying to deny or obscure.   For example, Deputy Finance Minister Nene has told us that he was met by a limo and cold champagne on his recent visit to our northern neighbour. A placard or two drawing his attention to the plight of the Zim refugees ought to remind him that his lavish welcome in Harare was definitely unusual and not unrelated to the possibility that he was arriving with a sack of real money.
Nonetheless the sight of the great and greedy greeting each other so warmly and nodding at each other’s speeches sent the bear into hiding. The JSE along with most exchanges enjoyed a spectacular week with some excellent volumes and excitable analysts declaring that the bottom is passed. The frightening facts however, continue to accumulate. Businesses are shutting down; jobs are disappearing and about the only consuming taking place is of borrowers by their debts. The bear will certainly return.
Despite an upbeat announcement from National Treasury, the raw and simple numbers show that government revenue collections are slowing down very quickly while expenditure is accelerating. The price of votes these days is terrible. The demand for bond finance is going to surge (Anglo American bagged $2bn in the US this week) and I think that means that long bond yields will have to rise. If you have money, be wary about lending it to anyone long-term.
Inexplicably but gratifyingly for some, the rand is very near 6 month highs against most currencies. As a result, rand hedge shares have been particularly disappointing and mostly failed to participate in the current euphoria. Those who believe this strength will be reversed by the election of a president with such finely tuned race detectors that he can tell how many passports each citizen owns, should investigate the New Rand exchange traded fund.
The IPL cricket circus to be held here in SA might be a good time to run an economics experiment and to offer the various prize winners gold coins instead of US dollars. The sub-continent’s citizens are famous for their interest in the metal. A gold mining company used to offer a krugerrand to batsman who smacked a ball directly into their advertising board at the Wanderers. Sounds a whole lot more attractive than a thousand sheets of Mr Bernanke’s newly printed paper.
James Greener
3rd April 2009.