Thursday 23 September 2010

STOKING THE FIRES OF BUREAUCRACY

It really is very odd. Every day the anti-capitalist debate ratchets up another notch and the masses demand that the state should do more and yet every day demand for the rand also increases. Do foreigners really want to own South African assets in the belief that the state will buy them out at better prices quite soon? A further error in this model is that even if this were vaguely possible, the scrum at the currency exit doors thereafter would presumably soon erode any putative profits. And while the data suggests that exports are growing faster than imports, is the currency effect of this really overwhelming the ingrained habit of South Africans to get money offshore at every opportunity? Like everyone else I just shrug and mutter about the “carry trade”. But even that needs more players or money to be joining the game all the time in order to explain the strengthening rand.
Oh and the gold price keeps going up.
Some alarmingly influential voices are starting to agree with the crazies that nationalization is perhaps not such a dirty word after all. What is going on? Are they putting something in the water? Name just one area – other than tax collection – where the state shows the least aptitude or ability or even interest in running an effective and efficient organization. And even tax collection is tending to degenerate into shrill threats akin to extracting money with menaces. I wonder when someone at SARS will spot the terrifying idea being floated in Britain that salaries and pensions ought all be paid directly to the Receiver of Revenue who will subtract what he feels is due before sending the balance on to the mugs. Really, governments world-wide are getting far too large and self-important. Remember, THEY work for US.
This sad decline has been quantified by the announcement that South Africa has in the last 10 years fallen 40 places to 82nd in the world economic freedom rankings. The ranking process scores dozens of different areas and sectors before aggregating them to obtain the overall position. In the areas where the government has so far not managed to interfere too much our rankings are rather good and the JSE’s settlement systems even scored first place. But in places where the state either needs to or has chosen to operate, like the regulation of business, security of property rights, health and education this nation is vying with some very dodgy and failed regimes for the bottom of the league tables.
Current contributions in the race to the bottom are being made not far from here, where catering with talking opportunities has been arranged for the party elite and crowds of hangers on in a large conference centre. The city council has closed the streets around the venue to traffic. Blue-light convoys wail along the freeways at all hours. The perceived threat to delegate comfort is clearly more important than ratepayer convenience. Ever since the world cup, the traffic cops are eager to try their skills at traffic disruption at any opportunity. Pigspotter, the splendidly named addition to cyberspace, now has associates in the kingdom.  Few will believe that the authority’s anger at people using technology to alert each other to speed traps and road blocks has anything to do with road safety. More likely it is a reaction to the threat of disrupting both formal and informal revenue collection.
I was delighted with the news that Sasol is now producing a fuel from coal feedstock that is good enough for aircraft to use. I remember a vintage cartoon, lampooning the new fangled aviation industry, depicting a sweating engineer frantically shovelling coal into a boiler in order to raise enough steam to keep a string and paper plane-like contraption aloft. And now it happens. I wonder what fuel the military jets and helicopters showing off over the conference venue are using? Come to think of it what are they doing there anyway? It’s just a party talk-shop.
New events at the Commonwealth games include concrete mixing and pouring, stadium seat installing and pin the blame on the donkey.
James Greener
23rd September 2010.

Sunday 19 September 2010

TAXING THE FAMILY JEWELS

Feature of the week is the dollar gold price which just keeps on trucking upwards. The business channel screens are full of well brought up economists insisting that the decade-long rise is short lived and that gold bulls will regret swapping fiat paper money for lumps of cold yellow metal. They are eager to point out that amongst its many shortcomings, gold pays no interest and can be used to avoid tax. Locally our enjoyment in this excitement is muted but hopefully only delayed by an obstinately strong rand. This strength was not helped by the Japanese authorities, exasperated by their own strong currency, giving it a few swipes with a samurai sword and making it leak a bit. Buyers outnumber sellers in almost all the world’s share markets and our own All Share is sniffing at the heels of 29 000 again.
COSATU’s suggestion that the country needs a state bank (that)… “will ensure that interest rates are low enough to finance productive economic activity" raises a few questions. Does the author of these words understand that banks normally only lend money at rates higher than they can borrow it for?  Like most old reactionary cynics I shall not be reading “A Growth Path towards Full Employment”. The document is reportedly keenly supportive of the view that government employees alone have the skills and training to control the allocation of a nation’s resources. For me there already is far too much evidence that anything the state tries to run is bound to fail. Simply the issue is that people look after their own assets best and when entrusted to administer assets which have no immediately obvious and watchful owner, rarely resist the temptation to steal them. Corruption is the usual term.
This week’s saddest example of the state’s failure is the demand by pupils who lost out during the teachers strike for a guaranteed year end examination pass. Pupils themselves are now reportedly on strike and armed police have been deployed against the threat. . No one in authority has the courage to point out that an exam pass is totally distinct from acquiring the skills and knowledge that these so-called “learners” will desperately need to compete with the other entrants to the labour market all over the world. Many of them I suppose still believe that the state will provide a living even if they can not read or write. After all, who has ever seen pictures of our president deep in concentration poring over a policy document while making annotations in the margin?
 Another community that the government is unwilling to confront with the truth is mini-bus taxi drivers. AARTO is the rather ugly name for yet another scheme to cajole drivers into obeying the traffic laws. It final but risible sanction is the withdrawal of a driving licence – a document that many never legally obtain anyway. AARTO’s implementation has now been postponed because of “public panic”. This panic was actually an unruly traffic-disrupting gathering in Pretoria that had the familiar effect of demonstrating which side is the more heavily armed.  
Those of you not living here in the kingdom may have missed the story about the unfortunate woman who was robbed of more than R200 000 worth of jewellery. This dreadful crime took place in a shopping centre as the lady was returning to her car after having had the jewels weighed. The purpose of this odd practice was, she explained, in order to “pay taxes on it”.  It is indeed tax return season, and most of us are currently wrestling with the dreaded forms, but I must admit to having missed the levy based on the weight of one’s trinkets. Mind you, the lady concerned is a close relative of the man who used to be the president’s financial advisor so maybe she is privy to some forthcoming announcement. As far as I know the tax man’s recent communication to several thousand of his customers did no more than leak his email address book to the astonished and in some cases delighted recipients looking to expand their own client base.
My Shark supporting friends are getting anxious about the resurgent and mighty Transvaal.
James Greener
19th September 2010.

Friday 10 September 2010

BULLS EVERYWHERE

In common with investors worldwide, those on the JSE became overexcited at yesterday’s news that only 451 000 Americans were claiming unemployment relief and indulged in a buying spree. Shortly afterwards the Bloomberg’s news service announced that the SA  repo rate had been cut 50 basis points from 6.5% to 6.0%. 20 minutes later Governor Marcus confirmed this in her TV broadcast and even more frantic buying ensued. But before the market closed, the sad fact that all of this actually has scant immediate impact on the valuation of companies wiped out much of the exuberance and prices slumped. Day trading is for the brave and nimble only.
Some research suggests that changes in the price of money can take months before any measurable effect can be detected in the various measures of economic activity. Presumably now that cash is cheaper than it has been for decades, borrowers must be pleased, but whether they will now borrow and spend more than they had already planned is unknown. I suspect that matters such as threatening political instability, excessive and unpredictable regulation and bureaucratic interference provide somewhat more important considerations for financial  decisions than interest rates.
That would seem certainly to be the case with the currency, where notwithstanding the rate cut and ever more strident shrieking about nationalisation and land ownership, demand for the rand is maintained. In addition to the widely believed story that foreigners just love buying our still quite high yielding bonds. Notwithstanding the demand for super luxury watches and whisky from President Zuma’s fortunate and capable friends and relations, other data also indicate that the value of exports is recovering faster than the value of imports Whatever the reasons, it does look as if quite soon just seven rands will buy you one US dollar. Mind you that also says something about the dollar getting cheaper.
Reporting and dividend season is now upon us and good news results outnumber the bad. The people running the real economy are doing a good job for themselves and their shareholders. This doubtless is one reason for the trade unions demanding that the government “tax the super rich”.  Assuming – incorrectly – that each of the 400 or so listed companies is able to pay say 10 directors and executives R10m a year each, that R40bn, even if taxed at 100% (!)  would cover just 19 days of government expenditure.
If your travels ever land you at our new King Shaka airport down here in the kingdom, take a minute to find and view the smallest of the delightful family of bronze bovines that stand outside the terminal building,. The recumbent calf is easily overlooked but is very appealing. The bull, however, is rapidly acquiring a shiny nose as visitors adopt the custom of rubbing it as they pass. The figure of the herd’s minder, King Shaka himself is absent. It has been removed following complaints that it failed to radiate sufficient power and gravitas. An official committee has been convened to instruct the sculptor
The folk who run cricket will be delighted that they have at last managed to rid themselves of any support from old duffers like myself. After studying a full page colour advertisement for a so-called Champions League Twenty 20 tournament that is about to start here on the southern tip, I am no wiser about how many South African teams or players might be participating. The organiser’s transformation of the game from employing boring yet identifiable regional and national teams into natty contemporary franchises is complete. Who on earth are the Wyamba?
And come to think of it, who are the Pumas?  The hint is that the Sharks are going to Witbank tonight so I guess someone in the Eastern Transvaal thought an American cat was an appropriate name for their rugby team.
James Greener
10th September 2010.

Friday 3 September 2010

DANCING QUEENS – IN WAITING

Sadly the strikes appear to be continuing. The union leaders expressed little interest in the government’s complaint that taxes and borrowing will both need to increase if their demands are to be met. There is obviously a huge problem with the state’s pay scales and staffing policies. The national department of arts and culture – surely together with sport, an area that has no need for government presence – this week advertised five Chief Director posts all offering salaries over R60 000 per month. The successful appointees will direct, in chiefly fashion, departments dedicated to “Investing in Culture” and “Arts and Culture in Social Cohesion”. That these jobs even exist let alone will soon be filled by dark-suited laptop-bag toting airport concourse denizens on their way to meetings and lunch is offensive. The department is also seeking to fill the obviously very lowly but hopefully vital post of Assistant Director: Budget Planning and Expenditure Control with someone skilled, qualified and experienced and who will be content with R16 000 a month. I expect the previous incumbent has joined the skilled, qualified and experienced nurses and teachers on the streets.
However, the KZN department of arts and culture has been busy doing some real work. They have been counting maidens and announced today that at least 26 000 are available to take part in the annual Reed Dance. The Dance is a sort of shop window for the king and his buddies to conduct a stock take of potential marriage partners. President Zuma usually attends. The rest of the world is either amused or aghast. It seems an incredibly large number.
Do politicians never share a meal or sit down with their family and discuss the triumphs and tragedies of the day? Do they really have no interest in what their flesh and blood is up to? Durban’s Mayor Mlaba claimed he had no idea that his daughter’s company was working for the city. You would have thought that a R3m contract might just have been exciting enough to mention to Dad between the soup and the main course. Apparently officials are usually “so busy formulating policy” that they forget to check if any family members are breaking the rules. Believing this makes you as naïve as the bookies who quoted odds against Pakistan bowling no balls to order.
In the meantime Governor Marcus has explained that interest rate decisions are “complex”. This presumably is code for “don’t expect us to cut rates next week”. Actually the decision is difficult not complex. It is merely up, down or nothing. Up will cause so much uproar that the sky will fall down. Leaving rates unchanged will attract scorn and accusations of timidity. So they may as well cut 50 bp. The only sufferers in the short term are a handful of elderly savers who won’t say much, and it is unlikely that anything the Reserve Bank can do at this stage will revive the near moribund lending market.
The All Share index is now exactly where it began the year having excited both bulls and bears in turn. The performance has however, been unevenly distributed with the modest uptrends in financials and industrials offset by a fading resources sector. Now mining was supposed to be the sector that was going to make us rich in 2010 as we pinned our hopes on China’s seemingly insatiable demand for raw materials to build stuff with.
Pretty much anytime the ‘bokke players or coach spot a microphone, they feel compelled to say things that later almost everyone would rather they had not. Apparently coming second in the tri-nations is now regarded as both inevitable and a good thing. Oh dear me no.
James Greener
3rd September 2010