Friday 30 October 2009

SO WHERE IS ALL THE BAD NEWS?

There was great excitement when the USA announced that growth in the third quarter was a stunning 3.5%. Importantly, this number was even better than expected and so it was “off to the races for the bulls”. Untroubled by concerns of valuation and similar dismissible nonsense, buyers must be sure that any shares they buy now will be sold shortly at a much higher price to someone even more optimistic than themselves. Bears and sceptics immediately began to dissect this growth figure, pointing to the very large impact that various government stimulus packages had made on the result. Since that was the object of the official interventions, the designers and supporters of the packages must be delighted.
In SA we watched the new Finance Minister do quite a good job of telling it like it is. However, despite declaring that he was no longer a communist, Minister Gordhan threatened to raise tax rates if growth alone did not see more money flowing into the state coffers. It is never explained why tax eaters are not subject to the same economic laws of supply and demand that so obviously affect tax payers. If income fails to meet expenditure, do what the rest of us do and slim down. Try shutting whole departments, like sport and arts and culture for starters and getting the rest to stop harassing their clients with annoying, counterproductive and demonstrably useless procedures. Why for example should it be necessary for the Minister of Basic Education to have an advisor who declares that “(school) syllabi would be a clear statement of what teachers needed to teach.”! Is this something new? Does the minister not already know this?
However, the Minister did announce some further relaxation in foreign exchange controls and gave citizens more freedom to make investment decisions. Regulations are now at the point where most ordinary people will be able to move much of their money wherever they like – provided of course that the taxman agrees. The announcement did cause a small weakening of the currency but nevertheless the rand has still been one of the best places to keep one’s wealth in the last twelve months. Anyone with what might now be termed Malema Money in a Swiss account also now has to worry about the gnomes telling the world about their hidden hoard. This turnaround in what we all took to be national characteristics of secrecy and confidentiality is amazing.
Any attempt to offset the huge increases in the electricity price with solar water heaters has been frustrated down here in the kingdom of late as the sun has rarely shone. That means that the meter has been clicking over at an alarming pace. Therefore it is very worrying to read that the Eskom boss is being encouraged to resign. It is not that he will be a loss to the business but it is the cost of his departure that is the problem. I doubt he will go with just a gold watch, some kind but insincere words and a paper cup of something warm and sparkling in the board room. A cheque with seven or even eight digits is not an uncommon memento after a couple of years warming the executive leather. The exit package could easily add another few percent on the next hike.
October performance on the JSE will be around a very useful 6% - an embarrassing result for those of us who wondered if an October correction might happen. Some shares and indices are approaching the records set a year ago. It has been an astounding recovery, based presumably on the view that the current slump in company earnings and cuts in dividends will be reversed and recovered within the next 12 months. Now that will be even more astounding.
There was a quite spectacular test of the lights in the new World Cup soccer stadium last night which only highlighted the darkness at Kings Park rugby stadium next door. Pubs will probably be offering cheap beer tomorrow just  to get me in to watch the Bulls lift the Currie Cup. Sharks supporters have gone fishing.
James Greener
30th October 2009.

Friday 23 October 2009

BULLET PROOF VESTS IN DEMAND

The problem facing the markets, as I see it, is that there is a second wave of debt related issues still to wash across the USA. An unimaginably large amount of money has been borrowed, much of it by the US government itself. The properties which act as security for many of the private sector debts are mostly now worth considerably less than the loan – a position known quite whimsically as “being underwater”. In the commercial and financial worlds the security for the debt has turned out too often to be a piece of paper bearing promises of future cash flows which are very unlikely to appear. In the government’s case the security is the Full Faith and Credit of the US nation, not to mention a printing press with helicopters on standby. One of the biggest lenders to the USA is China and it has recently been  looking at this rather tatty list in alarm and instead of providing any more loot is buying stuff that they can touch and store – like minerals.
The ability and indeed inclination to service the debt is hampered by people losing their jobs and firms losing their customers. Inflation, which is very often the mechanism by which the relative threat of a debt is reduced, is also not happening.  The state’s response has been to print money and virtually to give it away. The free money is landing up at the banks who are celebrating this bonanza by declaring record bonuses all round. Politicians and bureaucrats fearful of losing votes are thrashing about trying to regulate that every one gets what they need whether or not they deserve or earned it. But I doubt if they can manage to create yet another prosperity boom. Beautifully crafted quarterly earnings statements have been “beating expectation” and the trumpets blast another fanfare. The Emperor is reportedly gorgeously attired and none dare say otherwise. This situation demands a very large cautionary notice.
Meanwhile, on the JSE, reporting season has tailed off and it turns out that average earnings for financial sector companies are down almost 50% from a year ago. The share prices have not yet reflected that and the PE ratio of the sector index is close to 20. This seems way too high for an industry that has yet to disclose just how difficult South Africans are finding it to service their loans. The Governor made this task no easier this week by eschewing one last prod of the interest rate pedal before ambling off to his farewell party. Given his penchant for single malts I am sure that the Reserve Bank shareholders will have secured for him as a farewell present, at least one of the three bottles of 50 year old scotch priced at just R150 000 and now available in SA.
Despite the rather petulant claim by Minister Patel that his Economic Development Department was in charge of micro and macro economic planning, it seems that actually he is being left in the dark. Other people who boast of much better sources were all over the media with the mines nationalisation story again. And there was also a terrifying idea about pegging the currency that was denied as swiftly as it emerged. Nevertheless, the old smoke without fire adage is often useful and it is alarming to discover that there might be such lethally bad ideas doing the rounds in the corridors of power. The country’s major mining house set about its own program of reducing its potential value for anyone by losing a host of top brass and putting some assets up for sale. Mr Malema may need to hurry if he wants to try out an office at 44 Main Street.
Rather than ridicule the idea of visiting teams donning bullet proof vests we should be encouraging foreign players to consider full battle gear when trotting out on to fields here. With the opposition dressed up like that there is just a faint possibility that one of our Bafana Bafana stars might get lucky and outrun a defender.
James Greener
23rd October 2009.

Friday 16 October 2009

THE DOLLAR IS LOSING WEIGHT

There was a rather ironic symmetry in the headlines about the government finances this week. On the spending side it emerged that the army had neglected to include the extra R30bn to cover the motor plan for the eight rather smart military transporter aircraft that they have on order at a mere R17bn. On the income side the National Treasury seem a bit put out that capital punishment is no longer available to punish anyone who fails to devote every waking hour to seeking ways to pay more tax more frequently. Now widespread tax compliance is a fine idea, and I think the government ought to publish the tax return of every person in a state postion where the official salary attracts the top marginal tax rate. But the additional revenue that they are probably going to ferret out with the latest campaign will likely be less than the money saved if they were to let me rewrite this notorious handbook about ministerial expense allowances.
Bureaucrats around the world seem unwilling to accept that there is a serious slowdown taking place and that in the real world people are losing their jobs, paying off debts and cutting back on spending. Tax revenues are therefore falling. Outgoing Governor Mboweni’s claim that this is a minor recession is manifestly wrong.
But I am also puzzled why we need so many planes. Popular wisdom has it that the SA army does not have many tanks to transport anyway and the number of fit young soldiers acceptable to the peace-needing nations is not very large. And in any case in these days of a unionised military, the troops surely demand no less than business class on a scheduled airliner when travelling. This would cost a whole lot less than R47bn and should release large sums to provide some of the services that are so obviously missing where the distressing and violent demonstrations are presently taking place.
Although I was little sad when they did away with the Transvaal, I suppose I ought to be grateful that my leaders have thought it important now to ban the transfats. These, presumably rather greasy things are allegedly very bad for us and the state has decided that in lieu of controlling the many other very dangerous things we citizens face everyday they are going to sock it to the transfats.  There are probably only a handful of white-coated food techhies who could tell a transfat from a cisfat (?) but nevertheless life on the southern tip is about to become a whole lot safer and slimmer for us all. In the spirit of scientific enquiry I wonder if the average mass of the elected parliamentarians could be measured and logged over the next ten years or so in order to confirm the benefits of this scientific breakthrough.
It was reported that Australian sports fans find that rugby is hard to follow and prefer to watch a sport where frequently 90 minutes will pass without the net in either goal serving any function whatsoever. I agree, nil-all draws are undoubtedly a whole lot simpler to grasp. This nonsense with three different scoring values and the need to count as high as 4 tries or even worse, calculate score differences is way too hard. Talking of sums though, if just half the expected number of local fans who will attend the Sharks versus Cheetahs semi-final tomorrow each drink three beers, the cost will be way less than the state-supported Industrial Development Corporation blew on a farewell party for three departing directors. As I need always to remind myself, public service is all about the catering.
I watched the funny money channel as the Dow broke through 10 000 and their excitement was huge. No one, however, mentioned that gold has outperformed shares over the last six years. It is the falling dollar that is the problem. In fact it is everyone’s problem.
James Greener
16th October 2009.

Friday 9 October 2009

SHOE IN

Although the JSE All Share index is around 40% above its March lows it has actually been stalled within a 5% range either side of its average over the last 8 weeks or so. The resources have been slightly the more jumpy of the sectors, but nothing really has required much attention. The cement and minerals industries released doleful figures during the week showing that there is little demand for their products. It is hard to make a case for buying many shares. While the dollar price of gold is setting records, the strong rand is ensuring that local mines are getting only a disappointing reward for their efforts.
Potential bond buyers were also rather scarce. Capital raising plans are becoming popular and investors and lenders are holding back a bit to see what each particular slotted tin shaker is offering in return for their money. Among the less appealing proposals was the provision of luxury hotel suites as temporarily accommodation for a civil servant and his hangers-on whose official home is being renovated. Why could he not have moved to the back rooms and camped under drop sheets for a bit like the rest of us do when the painters arrive? Even more insulting, was the minister’s claim that he was unaware how costly the digs were. As the man in charge of the police, it is his duty to spot rip-offs.
To buy anyone a pair of shoes as a present is a little odd, but when the recipient is the state president it is bizarre. How well do you have to know someone before you can go shoe-shopping for them? Picture the scene when the president ripped open the tissue paper and muttered words of thanks, embarrassment and praise for the donor’s taste in style, colour and lacing layout. Did he try them on immediately and then sashay around the room? Did attendants murmur compliments or did they clap and whistle? Astonishing.
And it was of this ex-president that I first thought when I saw the headline that the ever-vigilant competition chappies had unearthed a pipe cartel. However, it turns out not to be tobacco pipes but the boring yet vital concrete and plastic sort. In the absence of anyone making enough money to pay tax, the state’s tack seems now to be to find reasons to slap fines onto people. This may not be a sustainable source of funds. Neither too are electricity consumers who are reportedly going to face tariffs that will more than double. Eskom’s plans on this matter were rightly thought to be so outrageous that even the leaked document carried a warning that it might cause unhappiness if the public were to see it!  The sole amusing side to this story, is that it provides another example of the utter failure of most folk to grasp that anything they write down or even say and perhaps just think, can leak on to the internet in a mouse click. And the more dirty the secret, the faster and wider it will travel.
Investment research was an early victim of this distribution technology. Today no snippet of information can remain secret for very long, but nevertheless regulators believe that they can now identify items that too few people knew about too early and fines are imposed! Not so long ago stockbroker’s research reports were typed, printed and posted. The most important clients were favoured with a phone call to alert them to what the analyst had discovered No one mentioned the clients who had to wait for the postman.  
Why are three “assessors” required to determine if the egregiously overpaid Coach Santana is up to scratch? A glance at the national football results tells a clear story that Joel and the boys of Bafana have yet to understand that goals are scored by popping the ball into the net. Perhaps the assessors will delay reporting until they too have spent a few weeks on the beaches of Rio which apparently are a far better site for a training camp than some damp field in the Freestate.
James Greener
9th October 2009.

Friday 2 October 2009

SPONSORED STUPIDITY

Those of us clinging to the quaint colonial notion of a calendar will have noted with alarm that we are now in the final quarter of the year and October has in the past often handed investors a wakeup call. Not only has the All Share index suddenly given up trying to stay north of 25 000 but the rand also seems to have lost interest in pursuing its recent bout of heroics. In the last week there was a rash of June year end companies reporting and very few of them had good news or even a dividend for their shareholders. The government similarly has admitted that it is collecting far less money that it is spending and suddenly there is muttering about the need to increase tax rates. Please have a look at the spending side of the book too chaps. For example it would help if polygamous city managers were prevented from spending more than half a million of public money on funerals for ex-mayors.
Another bureaucrat in the person of the frighteningly foolish Youth League leader sadly persisted in revisiting the recent appalling developments in SA athletics. Apparently his home language has no word for the tragic medical status of the young athlete and so it can not be considered to exist. Without a similar rejection of terms and items like car, plane, cell phone, executive lounge and Johnny Walker Blue, none of which existed in any language not very long ago, might I suggest his position is inconsistent? Sponsorship for commercial advantage is clearly also a difficult concept for the man.
Over at FIFA headquarters they have been cracking open the single malts to toast their court victory over the retailer who was found guilty of selling lollipops with an unauthorised picture of a football on it. The same court has also been asked to force the hitherto rather unknown Commission on Traditional Leadership Disputes and Claims to pronounce its position on one inkosi Melizwe Dlamini’s claim to “be recognised as a king and for his clan's lands (in southern KwaZulu-Natal) to be declared a kingdom”. Opposition to the claim is coming from the existing king who already has a kingdom hereabouts. Most taxpayers I think  also have little need for another king and dispensing with that Commission itself should save a bit too. Despite all the organisations in the country that have been set up to govern every aspect of our lives, South Africa has shamefully slipped to ninth place in the continent’s governance ratings. Where the continent stands on the global ranking was not mentioned, but top is unlikely. Pretty soon a talking head will reject the findings as imperialist and demand a commission to investigate the problem.
In the meanwhile, as ever, the real problem is crime and the latest official response has been to sanction the use of shoot-outs to control criminal numbers. One difficulty with this proposal is that the good guys appear to be out gunned! I would be interested to know what the experienced working policemen at the sharp end of this business would like to do. The apparent increase in the number of crooks using weapons that once belonged to the police and army, indicate that the drive to control firearms by imposing exams and inspections on gun owners has failed completely. Similarly the five yearly renewals of driver’s licences have done nothing to reduce traffic accidents.
The Proteas, however, did their bit for reducing traffic congestion in Gauteng this weekend by ensuring that they were not in either the semis or the final of the ICC Champions Trophy. Their sponsor must also be having doubts.
James Greener
2nd October 2009.