Saturday 30 October 2010

FIFTH WEDDING AND A FINAL


Almost all of this month’s rather modest 3% total return from the All Share index occurred in the first few weeks. Thereafter the market has put on a virtuoso performance of matching ups with downs, mixed with copious indecision. The banking sector has found the going particularly tough. But mining houses and rand sensitive resource exporters appear to be benefiting from all the waffle about currency wars. The steadily rising prices of commodities suggest that someone somewhere is always keen to buy something either to eat or to make into something else. One particularly interesting segment of this market are the so-called rare-earths of which China seems to have an inordinate share and which recently they have declined to sell to anyone. Many of today’s essential electronic gadgets need tiny but critical amounts of these elements. Watch this space.
Minister Gordhan stepped up to the podium in Parliament with the exciting news that he will be collecting R30bn more in tax from us this year than he originally anticipated. But all he can think to do with this windfall is to buy some foreign currency. Not a great idea in my opinion. First prize would definitely be to give it back to us tax payers, so we can individually decide what to do with it. I, for one, would not buy any greenbacks. There are just far too many of them. However, I am not convinced that there really is a problem of excessive revenue. There was way too much dependence on expressing everything in terms of GDP which in turn depends on assumptions of how much it might grow. If there are indeed any extra rands in the National Treasury they will be quickly mopped up by those enthusiastic and spendthrift ministers who just recently have signed declarations that they will do their jobs and deliver services from now on. The president’s office has already claimed a 10% increase on their original allocation in order to meet “unforeseeable and unavoidable expenditure”. Is that a warning that we have another wedding to pay for soon?
Consumer price inflation is exactly that. Each consumer has a different experience depending on his or her pattern of consumption. The just released and much celebrated multi-year low of 3.2% for September was definitely not my experience. My electricity bill claims a considerably greater proportion of my total monthly expenditure than the 1.9% that the Stats SA model uses. And this item is up 18.3% year on year. Add to this the 7% increase in beer prices which also impacted me more than the model’s 1.6% weighting of expenditure. Those readers paying school fees will be amazed to learn that Stats SA feels that they comprise just 1.3% of one’s outgoings. These fees are up 10.2% year-on-year, the second highest after electricity. These figures go a long way to explaining why spending on other consumer items is under pressure. Apparently bread and cereals are down 1% in price since last year and telecommunications equipment is 30% cheaper. For all its importance in economic debate the inflation rate is a dreadfully suspect number.
The world is very relieved that Warner Brothers and New Zealand have agreed that those cold and soggy islands will be used as the location for another Hobbit movie. Taxpayers there are even paying $10m towards the film company’s marketing costs. The director also has his eye on the All Black training camp when it comes to casting for those fearsome huge and ugly creatures who lurk in the background just offside.
Flag sellers, whose business took a dive in July, are back in droves at the kingdom’s traffic lights, offering any item you can imagine plastered with the Shark logo. The intrepid few who have travelled from Province for the final will struggle to find much in blue and white hoops.  Despite my great grandfather having married a Cape Town girl in 1881 I shall be supporting the black and white tomorrow.
James Greener
29th October 2010

Friday 22 October 2010

THE COMPUTER SAYS WHOA

So there is the All Share index above 30 000, offering a slender 2.28% dividend yield  - assuming everyone maintains last year’s dividends of course - and a rather off-putting 17.2 price earnings ratio. This index is now fewer than 3000 points below the all time high and if and when we breach that level there excitement will be high with few bothering to point out that it has taken about two and a half years to get back here. I can’t see a good case for any but the most timid of buying programs at this stage.
Further revelations about the foetid mess that is the US mortgage-backed securities business have come to light. Substantial fraud and gross negligence aside, the key issue in this debacle is that a very large number of people who borrowed money to buy a home in recent years are now faced with the unsettling fact that the current resale value of their house is very much lower than the outstanding mortgage debt. Under these circumstances and with a government inclined to be sympathetic to their plight, the urge to stop paying is strong. This really messes up the cash flows down the food chain and now some of the folk in that chain don’t want to play anymore. These threatened sell-outs are only helping reveal the extent of the administrative mess which has failed to keep track of who owes what to whom.
The bureaucrat who came up with the idea of “Multi-disciplinary Roadblocks” will be in line for a big fat bonus. The plan is that a motorist pulled to the side of the road is in a near defenceless position that provides a wonderful opportunity for the agents of the state to probe their victim on any number of topics other than mere driving and vehicle fitness. Modern communications technology will be used to beam down to the roadside officer your most intimate details. Just imagine the amount of the bribe needed to dissuade him from checking on your tax status, your citizenship, your indebtedness, or your wife’s photo against your passenger. They will probably also be able to embarrass you further by revealing how long it was since your last dental check up.
The news channels are trying to get excited about the rumour that President Zuma is in the midst of a cabinet reshuffle.  There certainly are a number of ministers who should be removed from power as soon and as far as possible but it is unlikely that Mr Nice Guy will do much to bruise egos or offend friends. My own view is that it far more likely that the  Christmas liquor special catalogues have caught the president’s eye and he is rearranging the booze cabinet to make space for that Macallan single malt at a mere R150 000 a bottle. With only three available he had better move quickly if he going to be a good host at the party after next week’s medium term budget which may or may not make changes to exchange controls.
There is lots of talk about something called a “currency war” in which the next battle will take place during this weekend’s G20 meeting in South Korea. It is not easy to understand what this means but it entails people claiming loudly that theirs ought to be weaker than yours. Adding to the confusion is the fact that within each country there is also a difference of opinion about whether their currency unit is actually over or undervalued and even worse whether or not that is a good or a bad thing. The Economist has their wonderful Big Mac index that tries to help mere mortals make some sense of it all. On that basis it turns out that our dear rand is undervalued. A burger in SA costs almost $1.00 less than in the USA. In China, it is $1.53 cheaper. This really annoys American politicians and prompts them to lecture China about how to run their economy. Lectures that the Chinese wisely ignore. In fact this week they nudged their interest rates up a notch.
With a week to go before the Currie Cup final there has been space in the press for the apparently shocking news that some FIFA officials can be bribed and someone called Wayne no longer wants to play for Manchester United. Troubling stuff indeed.
James Greener
22nd October 2010

Friday 15 October 2010

RAND RAMPANT


Investors world-wide appear to have no doubts. The rand is the must-have currency. At present a single US dollar will buy 680 SA cents. Whatever those investors are choosing to do with the rands – buying shares appears to be one idea – they must be assuming that when the time comes to take their money home, the price of a dollar will be not very different from these levels. However, it tends to be in the nature of markets that this assumption is usually false if only because most people will leave the moment they see weakness developing and then a bit of a scrum forms at the exit. This only speeds up the collapse. Locals who have not yet used up their foreign currency allowances might think about taking advantage of this period of rand strength.
Much of the current optimism in the markets has been caused by the near certainty that the US Federal Reserve will soon launch what is being called QE2. This is not an ocean liner but the second tranche of a so-called quantitative easing program. The innocuous name refers to the process where the Fed prints money with which it buys equally freshly minted bonds issued by the US government. The government then doles the cash out to its citizens in the form of salaries, payment for goods and services and on welfare programs. QE1 failed to launch the US economy into a noticeable recovery so they are going to try again. QE2 is a trillion dollar bet that this time the consumers will be more obedient and spend rather than pay off debt or save. The Chinese with $2.65 trillion in foreign currency reserves must be watching this program of dollar sacrifice with growing alarm.
One of the austerity measures being taken by the UK government has been to shut down dozens of tax eating organisations that provide little value. This is a great idea. Sadly the same cuts are not yet evident here despite being woefully overdue. The National Youth Development Agency has an annual budget of R370m. It pays R11m a year in salaries to a 12 member Operating Executive Committee who rely on input from a 63 member Advisory Board. Just the tea and biscuit bill for a meeting this large will leave precious little money out of the budget for any other youth development – whatever that is. Over at the misnamed Road Accident Fund, which is actually a R43bn deficit not a fund, the CEO was awarded a bonus amounting to almost half his already outrageous salary of R4.3m. Reports failed to indicate the reason for the award but clearly it can’t have been performance. The Competition Commission has delivered an opinion on the staffing complement for the proposed forthcoming merger of two life assurance companies. This change of focus from consumer protection to employment policies is alarming and typical of unchecked bureaucracies. And Stats SA sent a charming young lady armed with a blunt pencil and well used eraser to my house to ask questions and complete a huge census form. She treated my refusal to identify my race group on the grounds that we had stopped all that nonsense 16 years ago with polite amusement and then went on to record that I wear glasses and own a variety of consumer durable items that will undoubtedly catch the attention of any potential burglar who sees the document as it travels through the system. She forgot to ask about the Rottweiler though.
Good news this week included drawings for a ship that could house a brewery which could sail to places where shortages threatened. With my house being just 800 m from the beach I shall keep an eye on this development. Also developing is a black and white blizzard of Sharks support ahead of tomorrow’s semi-final against the Blue Bulls. The early kick-off provides a marvellously long post-match period in which to braai while watching the other game. Expect poor visibility in the Durban region tomorrow evening.
James Greener
15th October 2010.

Friday 8 October 2010

WRESTLING WITH THE RAND

Pretty much everyone it seems is keen to see the rand weaken. That is they think it would be a good thing if a unit of foreign currency were to cost more than it does at present. Quite how this can be made to happen is not clearly explained beyond a bit of arm waving and muttering about lower interest rates. Presumably the fact that our rates have been coming down precisely over the period when the currency has been going up is an embarrassment best left unexplored. The rand is strong because people with other currencies (except in fact the Yen) can see attractive things to do with rands. This includes the so-called carry trade which admittedly does rather depend on interest rates in South Africa being higher than elsewhere. Observe that the theory that after the world cup, demand for the rand would diminish has also been shown to be wrong. Sometimes the attraction of another nation’s money evaporates when the authorities in that country begin to behave erratically. This theory too is being disproved as the lunacy levels in the corridors of power rise. About the only sure thing is that when the currency does once again hit the skids and dollars cost R10 each, the moaning will be just as intense as at present with calls for someone to do something about it.
Equally puzzling is the strength of the equity market where the All Share index has been making a credible attack on the 30 000 level, a number it last enjoyed – on the way down - in July 2008. It is puzzling because the current round of company reports revealed no exceptional growth stories and some decidedly downbeat outlook statements. Very few companies or industries seem to think that business is undoubtedly getting better. Our largest bank is going to fire some staff. That’s not an indicator of things getting better. There is of course a world-wide scramble for yield and income and news of a blue chip company downsizing does cruelly suggest that they are doing what they can to keep shareholder earnings stable.
Talking of stable, all these headlines about SAB and Castel were a little worrying until it turns out that it had nothing to do with Castle, Mr Charles Glass’s finest brew. Groupe Castel is a brewery company that SAB are thinking about adding to their portfolio in their quest for world domination of thirsty folk. This share is always expensive but always worth buying!
It should also never be confused with SABC, which is a horror show pretending to be a national broadcaster. In actuality it is a device for transferring tax payers’ money to lucky individuals whose first task on assuming executive office is to submit a resignation letter along with a claim for large sums of money. Anyone sitting tight and displaying skill or interest in providing licence payers with a service is dismissed, but is still eligible for the going away presents. The SABC revolving door staffing policy provides newspapers with 5% of their daily content, none of which is ever read by anyone.
On the other hand there is great interest in reading where and when our president jetted off to, and particularly who went with him. Sadly, however, this information has now been classified and we shall just have wait until an overseas photographer snaps a picture of the fortunate fiancée before we know that we shall have to start saving for another wedding.
It is a small thing I know, but how do the teachers find the time to traipse off to their union conference just weeks before their pupils’ year end exams? The conference anyway seems to have developed into an acrimonious battle between political factions rather than a discourse about how to rescue the children from the failed experiment of OBE.
As usual these games events provide unmissable viewing for those of us unaware that girls did Greco-roman wrestling or that hockey was played in a shallow swamp or that SA has a strong archery squad or that synchronised swimmers wore water-proof makeup. The Sharks might need some of that stuff if the rain promised for Newlands tomorrow shows up.
James Greener
8th October 2010.

Friday 1 October 2010

INDECENT WORK?

The All Share index delivered a magnificent total return of 8.7% in September. A substantial portion of the heavy lifting was provided by the Consumer Services group. However the sad news is that year to date the All Share return is also 8.7% which means that the market has churned away for really very little effect for some time. Naturally there are huge variations around this dull average. Expectation of consumers returning to the checkout lines and a possible foreign takeover has pushed the general retailers sector up an astonishing 50%. The deadweight was been platinum mining, down 11%. The strong currency is thrashing this industry.
In June 997 960 foreign tourists arrived in SA of whom 16 368 were mystifyingly classified as non-visitors. More than a quarter of the other sort of visitors came into the country for less than a day. The 721 311 folk who visited and stayed for at least one night will obviously include world cup teams and fans. Not a lot is it? Slowly we are piecing together the full picture of that event. It was undoubtedly a whole lot of fun, but financially, nothing like the forecasts.
Another interesting statistic is that there are 10 million vehicles on the roads but just 6 million driver’s licenses. In a typically touching display of naivety, the transport minister declared that this gap was too large and that 1 million new licences would be issued in the next 12 months. Personal experience of assisting a learner driver to book for the official tests confirms that this target will be met only by heroic levels of bribery and little actual driver testing. Meanwhile the implication that no one is driving those other 4 million vehicles is manifestly false as anyone using the roads can confirm.
The Chinese are now such great new best friends that we have sent them models of our finest hominin fossils. But the news that Wal-Mart, which is China’s largest private customer, is looking to come here and sell stuff so cheap that even the poor can afford it has caused alarm. Allegedly the retailer has an archaic view about paying employees what they are worth. Union leaders are warning that if this attitude were to catch on amongst other employers, workers might choose not to pay Union subscriptions. And thousands of civil servants would be paid nothing.
I have failed not to get really angry at the complete nonsense of the celebratory announcement that our dear leaders have identified 12 national “outcomes” that all cabinet ministers will sign as part of service delivery agreements. Leaving aside the worthlessness of a politician’s signature on anything – he or she isn’t committing a cent of their own resources – the requirements of good government have been known for centuries, even if rarely practiced. In similar vein, another bunch of tax eaters has come up with South Africa's first ever Decent Work Country Programme. The only work this scheme will ever create is ever more forms for employers to complete to justify why they dared to offer a part-time cleaner’s job with no medical aid benefits or personal development program to a desperate man standing at the front of a long line at the factory gate.
It is worth recalling that the ABSA CEO who has been clubbing the South African Rugby Union with her handbag is married to a government minister who has declared his preference for the All Blacks over the ‘bokke. And then ABSA’s parent is Barclays in the UK, who are unlikely to be ‘bok supporters. Mind you SARU probably deserve a bashing for permitting irrelevant and extraneous factors to affect their sole job which is to create a rugby environment from which can emerge a Springbok side that beats everyone. And that goes for the people who run soccer in this country as well.
I suppose that the Sharks fans in the pub will be far too preoccupied with tonight’s match against the Leopards to want to talk about the Transvaal score line from last week.
James Greener.
1st October 2010