Thursday 18 November 2010

MORE BAD NEWS FOR SAVERS

Governor Marcus and her team of whiz kids have come to the conclusion that 5.5% is the correct price for money. Two years ago her predecessor and his bunch selected 12% as the ideal price You sort of wonder why it has taken them two years to get here because there is no evidence that the step by step progress from there to here has had any impact on the old enemy of inflation, which in fact has led rates down by quite a distance. Neither growth, employment or the currency has behaved according to plan so what is the point? Faithful readers will know that I am deeply suspicious of committee decisions and this repo rate is a good example of how they usually don’t work. You have to be almost as old as I am to remember a brief period when the nation flirted with letting market forces set the repo rate. It was exciting and volatile in the beginning as everyone learned how to game the system. Fortunes were made and lost but in the end I think it was settling down nicely. The Reserve Bank, however, suspected that the quiescence reflected collusion between the major players. So instead of trying to cure that, they quickly returned to the system of letting a committee set the price of what is used to price everything else. Unsatisfactory.
From what I can make out, the Irish nation is being urged to borrow money they don’t really need right now so that other countries that really have to borrow now will be able to do so cheaply. What’s happening here apparently is that bureaucrats are trying to influence the price of a type of money that undoubtedly is determined by market forces. That is the money that investors lend to national governments for lengthy periods like 5 to 10 years – usually called the bond market. This is just one of the shenanigans taking place in the global financial scene each of which may be having its own influence on what happens here.
The G-20 meeting ended with a communiqué that was as meaningless as the delegates hoped to get away with. The worthies of the G-20 invited those countries who felt their currencies were over valued to respond with “macroprudential” measures. In the predictable brouhaha that broke out among the talking heads of the rent-a-response industry and the media scrum about what on earth this might mean, the suits slipped away. I am sure that word in not in any real dictionary. Perfect.
A local shenanigan receiving too little attention is the news that in August the managing director of the company that prints the bank notes for us and other nearby countries was found to be rather remiss about keeping records and counting the stock. He was suspended but not charged. That must have been fun while it lasted.
Ms Middleton and Prince William were responsible for several terabytes of digital picture stock this week when they announced their engagement. Presumably her expectations of her future husband’s income once he is crowned king are well above the level recently announced by President Zuma for our local royalty. On not even R71 000 a month, kings lag both premiers (R135 000) and even executive mayors (R75 000) in the income tables. You wouldn’t cover even the Palace’s Corgi food bill with that. Perhaps we have a lot of kings?
You can be sure that there will be hordes of executive mayors, premiers and perhaps even kings turning up in Durban in 12 months time when unhappily we host an international climate change conference. Once again throngs of carbon-based life forms with zero knowledge about science will gather to demand in voices filled with carbon dioxide that the rather vital 6th member of the periodic table be banned from the globe. It will be a mess and another bill for ratepayers.
So what exactly is it that the ‘bokke have been eating with their cornflakes? If it is all that potent it barely worked against the Welsh.
James Greener
18th November 2010

Sunday 14 November 2010

FEATHERING OUR NESTS

While most of us have been fretting about strong rands, quantitative easing and other diversionary events, the bull has supplied the All Share index with a very impressive 20% boost since Spring Day. It has been the resurgent resources which have contributed most of the oomph. Financials as a sector are battling, and in my view will probably continue to do so until demand for their product – money – picks up. Even in rand terms the rise in the international commodity price indices has been very useful and one wonders what would happen if the currency one day did do a swallow dive and bolster local earnings even further.
Most of the great and not so good talking heads are gathered in South Korea for a knees-up where currency strength is definitely a huge agenda item coming closely below the lunch menu and the pecking order for the group photo. The delegates and their prejudices, policies and proposals are generally unchanged and indistinguishable from those present at every previous meeting. If they really do have an influence on the way things work then the current mess is therefore their fault and there is really no sense in letting them try to fix it again. More probably the economic situation is and always will be the result of about 6 billion people looking out for number one. The best thing the heads can do is go home, slash government spending and interference, which distorts the proper allocation of resources, and then retire to write their memoirs about how they for once did something really useful for the planet.
Government was warned that their RICA policy of getting every cell phone owner to register would be tricky. And so of course it has been. The mania for governments to compile databases of its citizens has reached a particularly high pitch here in SA. “Combating Crime” is almost always the offered reason for the exercise and sadly that is definitely not working. In fact most of us suspect that criminals themselves have easy access to these schedules of who owns what and where they live, thus providing not only targets but identities to be purloined for their own fraudulent registrations.
The state itself seems uncertain about the value and whereabouts of what it owns. Within minutes of promising to sell R20bn of its assets in order to lend the cash to Eskom, it announced that it wouldn’t be doing that anymore. The reason for this about turn has not been revealed but my guess is that the asset register was a disappointment.
Our new minister of sport says that he is worried that boxing appears to be run out of a car boot and that other sports are in similar administrative disarray.  Without exploring how any minister can even identify poor administration, politicians ought not to be involved in what we boys and girls do for recreation, fun and exercise. Unless we are really lucky or talented, the costs are usually borne from our own pockets and so a car boot is undoubtedly cheap office space. Some sports, however, are so popular that commercial sponsors, eager to be associated with potential winners and to get the attention of their fans and spectators have found it beneficial to wave their chequebooks. But Minister Mbalula is now determined to use taxpayers money to “ruffle a lot of feathers” This is not a minority sport involving birds. It is a program that will demonstrate that when policy  replaces talent, skill and effort the outcome is  anger, disappointment and disillusion for just about everyone in the nation who yearns to wave the flag and celebrate a victory.
The ‘bokke substitution policy in action in Ireland last week looked suspiciously like an early case of feather ruffling. It must be very unsettling for the captain to see valuable and on-form players whisked off the field for no better apparent reason that there is someone on the bench who deserves a cap.  Wales is going to be a very tough one. Go ‘bokke. And go Alonso.

James Greener
12th November 2010


Friday 5 November 2010

UNBLOCKING THE RAND

The largest ever container ship to visit our ports glided past my window a few minutes ago and into Durban harbour. From what I could see it was pretty much empty and the news is that she will sail on Monday after loading 7000 containers destined for foreign parts. Well that’s a nice sign. Exports greater than imports, but that does mean more upward pressure on the rand which seems to worry lots of people.
Federal Reserve Governor Bernanke in Washington also caused a great deal of worry in some parts of the world by confirming that he has ordered the printing presses to roll off $600bn worth of crisp new paper money. This, he will lend to the US government who have decided that they will do the spending that their citizens have very annoyingly declined to do ever since they lost their jobs and the value of their homes collapsed. Although, as some commentators have pointed out, $600bn these days is not really such a large sum of money, (really?!) it has to go somewhere and maybe a good chunk of it will flow into the stock market. Therefore we have seen some hefty buying on Wall Street as speculators fill up with shares so as to have something to sell at much higher prices when the fresh money arrives. And then of course with more US dollars in the world that means that fewer units of everyone else’s money are needed to buy a dollar which is another way of saying their currencies strengthen. So here we go around again!
Soon after entering the stock broking world I received an unforgettable lecture from my mentor and boss all about the various rands that existed. In particular it was important to know about the financial rand – now sadly deceased, it was great source of broker’s revenue – and the blocked rand, which Minister Gordhan seems to have just killed off as well. As the years passed fewer people in the industry knew about the blocked rand and what you were not supposed to do with it. Being a great believer in human ingenuity and self-interest I was never convinced that the total sum of blocked rands languishing here in SA was as large and threatening as some calculations suggested. I was sure that leakage was rife and that most emigrants had long since found ways to get their money to join them in Perth or Toronto. Our quaint triple currency is now just a topic for some eager researcher to turn into a thesis.
I am appalled by the news that the JSE has effectively created a mini-board where investors of only a certain racial classification will trade shares that are similarly classified. Even if the listed companies feel compelled to go along with government’s terrible and wealth-destroying program of resource allocation by race, the bourse ought to be at the forefront of insisting that shareholders are equal.
The huge penalty slapped on Pioneer Foods for allegedly colluding to set the price of bread is very alarming. They must have really annoyed someone’s relative. For starters, doesn’t it take at least two to collude so why not treat all parties equally? Next, the fine extends far beyond a simple cash payment to the state. The company must pay a sum into an “Agro-processing Competitiveness Fund” which will quickly be plundered if only because no one has any idea what that means. The authorities have also told the company how to run its business in the next few years so that the punishment will be long lasting. They are delighted to show off with terms and concepts like “capital expenditure” and “margins” – clearly in the belief that the bread and milling markets can be controlled by edict. The company’s eagerness to settle and get the matter behind them is understandable and the share price seems certain that the company intends quickly to move on.
The Sharks may have won their last Currie Cup at Kings Park. Now the boss of SA rugby has turned engineer and declared the stadium to be deteriorating. This is merely code for “the owners of the unused soccer stadium next door have a problem.”
James Greener
Guy Fawkes Day 2010