Friday 26 February 2010

BUILDING A PROFIT

Don’t we all feel so much better and wealthier now that we find out that the recession has been well and truly banished? The nation has allegedly now enjoyed at least six months of substantial growth. It might be considered churlish to point out, however, that the recovery is a trifle spotty. Strangely the wholesale, retail, motor trade and accommodation sector recorded a contraction over the Christmas season, while the manufacturing, and of course, the government sectors were the two most successful contributors to the final 3.2%pa figure. Another case of statistics contradicting mere observation. Rather like the folk who are buried in meters of snow insisting that they can prove that the world is getting dangerously hotter.
The JSE like most other equity markets will show an unexciting month in terms of overall index performance. This lack of action has simply widened the gulf between those punting whether a bull storm or a bear tempest will follow the calm. As usual I am alarmed by developments in the USA which I tend to feel will be bearish for equities. Nevertheless, one should never be wholly out of the markets and with the dividend season pushing up liquidity levels there is always something offering a bit more value than usual.
In the world’s currency markets there has been a very noticeable flow into both the US dollar and the yen and so against those two the rand has weakened presumably to the satisfaction of many. Nevertheless, anyone planning a summer trip to Europe will be gratified to see both the pound and the euro getting cheaper almost every day. As ever, currency movements baffle me and I wonder what happens to the people who accept the invitations that appear on TV to open a foreign exchange trading account. Surely most of them get carted out in black bin-bags? With the developments in Greece right now, would you be long or short the euro? Now that’s gambling!
After reading the results of a number of construction companies that appeared this week I was struck by how hard they seem to work at making the money which they ultimately distribute to the shareholders. The path that begins with being awarded a contract and then proceeds through mobilising resources, doing the work, getting paid (often tricky!) and then hopefully sharing profits is a long one. South Africa is, however, pioneering a new breed of entrepreneur who has managed to shorten the process. It often begins by persuading the client – usually a relative working for the state – to put up most of the money sometimes even before official tenders have been announced. This is swiftly followed by the dividend distribution, not forgetting a little something for the relative. Only once these details have been completed is there any possibility that the job itself, now grievously under funded, might receive attention. Commonly at this point a nosy press comment triggers an outburst of astonishment and contrition and a promise that in the event of further money being forthcoming, the project will be completed to everyone’s satisfaction. All players then return to GO without going anywhere near gaol.
While not yet forsaking my belief that the Lions will one day be great, I have this season already twice ascended the heights of the Kings Park stadium to watch the Sharks. This has not been rewarding and already the news coming in from New Zealand this morning is that the team from the kingdom are still are uncertain what they are paid to do.. I am now going to the bush for the weekend and will thankfully be unable to watch the Lions also looking lost down on that sodden sheep-filled island
James Greener
26th February 2010

Friday 19 February 2010

BEARABLE BUDGET

It would not have taken Minister Gordhan long to guess his predecessor’s password (either “maria” or “all blacks”) to log on to the department network and hack into Trevor’s files. Thereafter, a quick bit of copy and paste followed by a little tampering with the numbers and he toddled off to deliver the national budget. The result was condemned by many for being unimaginative and lacking surprises. The success of the budget relies a lot on a speedy end to the recession and also on everyone behaving properly and patriotically. The forecasts for both income and expenditure imply huge reversals to present trends
The belief that taxpayers will scoot along to the nearest SARS office and confess their past sins is heart-warming. Everyone was politely reminded that corruption was a bad thing. In the light of recent revelations about the opulence of a junior office bearer in the ruling party it would only be fair if the rest of us stand aside and let the one-time woodworker have the first opportunity to explain his income to the tax man. And thereafter let’s hear from the two so-called A-list Celebrities who crashed their Lamborghini and Ferrari into each other during a show of machismo and poor driving on the main street of a sleepy village in the kingdom.
In the meantime we wait for the deluge of riches that the World Cup will deliver in mid-year. But before that arrives, the bureaucrats are taking care that their own needs are ensured. For example, there’s the proposal that any bar that dares to switch on the TV for customers to watch “the beautiful game” must buy a R50 000 licence and pay a turnover levy for the duration of the tournament. The cherry on the top of this outrage is that the levy will be used to fund courses in avoiding alcohol abuse. Too late. This blatant piece of revenue-raising has already raised abuse levels.
Is there a dawning realisation that the World Cup is a FIFA boondoggle with only limited short term benefits to a few small segments of the host nation? More important, however, is the likelihood of long-term liabilities that we all will bear. The soccer itself will doubtless be amazing, and the South African people, stadia, and host cities are all eager to be welcoming and friendly, but is there really demand for a stretcher in a tent pitched on a school playing field in June in Johannesburg at R600 per night?  Are people staring to panic that the circus will sweep through and leave them no better off?
Last night the Federal Reserve in Washington unexpectedly increased the discount rate by 25bp to 75bp. This 50% increase in the price of the money that the central bank lends to the commercial banks was accompanied by the clearly silly contention that: “…The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy." The immediate market response was for the dollar to grow even stronger and it has now gained more than 8% over the euro this year. In currency markets that is huge and it will be upsetting plenty of business plans.
The JSE decided, however, that this rate hike was threatening and curtailed the rally it had been enjoying.  The index will end the week near 27 000. Reporting season is in full spate and around 30 companies reported half year results this week. Worryingly, less than half of these reports were able to show earnings growth. One-time giant Anglo American again skipped its dividend. Shareholders will therefore have endured a period of at least 24 months without any income.
As feared, the Proteas encountered serpents in Eden Gardens. Here in Durban, the Shark faithful were all for introducing NZ referee Keith Brown to a snake or two after losing to the Chiefs in the dying seconds. They still have one more point than the Lions though.
James Greener
19th February 2009.

Friday 12 February 2010

THIS LITTLE PIGGY WENT TO PARLIAMENT.

News and market reaction this week swung wildly from Woo Hoo moments (allegedly less American were looking for a job) to End of the World stuff (the PIGS will sink us all). These and all other claims are based on the infamous numbers that are churned out endlessly by institutions and organisations all of whom assure us that their credibility and reputation remains undoubted. Very few of us bother to ferret around in the fine print and disclaimers which specify the assumptions, conditions, and caveats that accompany the bald and naked number that the politician has seized on to prove his or her amazing skill in organising a  party in a pump room. PIGS, by the way, is the snooty acronym for those allegedly decadent and spendthrift nations that fringe the southern edge of Europe. Portugal, Italy …
Sceptics of the declining US jobless figure pointed to the fact that it routinely counts only folk who had actually tried to find employment and that the unprecedented snow falls of late had probably discouraged many from doing that. Hence the welcome drop in the number of unemployed Americans. Back home it was claimed that the presidential promise of creating half a million jobs in the second half of 2009 was 97% successful. This too sounds like a snow job.
Speaking of snow, why isn’t anyone complaining that the US is not fit to host the winter Olympics. Their organisation is obviously poor. The only place in the country not buried under feet of the stuff is the place where the games begin tonight. There is definitely no snow here in the kingdom either. I have spent most of the week hull-down in the pool with a crisp Castle quart in the ice bucket on the paving nearby. My hippo-like behaviour was occasioned by the long awaited rise in temperature and humidity that saw me donning the sarong and bathing costume in obedience to the saying that there is no such thing as bad weather, it is just a case of having suitable clothing.
Totting up the recent company announcements and trading statements here on the JSE, revealed a small majority that could be classified as optimistic and so the All Share managed to hang on around the 26 000 level. Among the bad news stories was the one from Anglo Platinum who announced a rights issue to raise around R12bn. That’s a lot of money, but since the share price has been under quite a lot of pressure in the past few weeks the news was obviously not unexpected.
 Minster Gordhan delivers his first budget speech next week and I think it may have quite a few nasty surprises in store. Unlike Trevor Manuel, he does not have a long-established jovial Mr Nice Guy image to maintain and I think he may be short on laughs and sound bites in other languages as he sticks it to us good and hard. He knows that he has little hope in getting the huge and growing crowds of tax eaters to exercise any restraint but he does know pretty much where all the taxpayers live and how much money they have. So guess who he will address?
The cricket test result from Nagpur was a sheer delight and I look forward to the Eden Gardens encounter. My impression of that venue, however, is that there always seem to be people making fires in the stands; a practice which is even less friendly than that repertoire-challenged brass band that sometimes turns up at St Georges. With the Super 14 now underway, Lions’ fans have to decide whether to go to Ellis Park or the High Court building where so much of the action still seems to be happening. I wonder what is the sense of forcing a player to run on to the field in a jersey he so clearly does not want to wear?
James Greener
12th February 2010.

Friday 5 February 2010

WHAT’S “DEFICIT” IN GREEK?

I am sorry if I am getting boring about this but the Government’s finances are getting ever more messy. Once a month the National Treasury releases an update and the latest figures confirm that the Zuma regime has no concern for, or perhaps more worryingly, any idea of what they are doing with the fiscus. In the last three months of 2009 the state needed to borrow an average of more than R400m per day in order to cover the shortfall between its out-of-control spending and the severely recession-squeezed income flow. This is a massive amount and suggests that the government would find it very useful if the cost of money could be reduced a bit.
Already we have heard the odd mutterings about perhaps ditching inflation targeting as a guideline for the Reserve Bank and indeed money market interest rates have sort of drifted down in last few weeks. I wonder if Governor Marcus is being encouraged to get her “rate cutting” frock over to the dry cleaners in preparation for the next meeting of the committee?  
The other aspect of this matter is of course the question of where all the spending is going.  As 2010 related construction projects wind down, there has been an increase in the stories about the now jobless workers wondering if that was all that the World Cup had for them. The answer seems sadly to be yes. All that remains for most of us seems to be to pick up the litter once the fans leave.
President Zuma has returned from his jaunt to the northern hemisphere and awarded himself a long weekend to recuperate. In spite of his pleas for privacy I am afraid that we now all know what he does to relax and young women are advised to be alert. It is now very obvious why the President always has a grin on his face no matter where he is photographed. 
Tax season is drawing near and it has been interesting to note the vehement insistence of clients that any profit-taking sales are out of the question because capital gains tax in particular is especially unpopular. I too share this attitude even if the maximum rate is no more than 10% of the profit. Is this new antagonism towards paying tax a result of the suspected undisciplined and uncontrolled spending spree already discussed?
Tempers are running high in Europe over the suspicion that the Greeks may not have been telling their new EU companions the complete truth about how much money they have and to whom they owe what. I doubt they are the first or last to massage figures in order to get in line for a hand out from Robin Hood. It is just that as winter lingers on in Europe, Athens must be one of the warmer capitals for the suits to visit and chat about things. Nevertheless this crisis is being blamed for worldwide equity market weakness and today the JSE All Share index has sliced through the 26 000 level. In about another 4000 points or so I might start to get interested in suggesting that investors resume a program of nibbling away at their liquidity levels.
The six nations tournament kicks off this weekend  but I regret that the  Super 14 which starts the following week tends to occupy fully the space in my brain devoted to the oval ball.  I tried to care that Egypt won the Cup of Nations but I was more than a bit disgusted by the soccer chiefs’ decision to punish Togo for withdrawing after their team were hit by deadly gunfire. Is it a numbers thing? How many team members have to be killed before official sympathy and understanding can be expressed? Soccer is a hard game to love.
James Greener
5th February 2010.