Friday 31 December 2010

BRIC A BRAC


 It looks as if the All Share index will end 2010 about 1000 points short of topping the all time peak attained in 2007. Nevertheless the bulls claim that this is the perfect platform from which to soar off and up into the New Year. Indeed share prices can and do go just about anywhere but some of us old curmudgeons believe that when valuations do so, there are messages to be read. An All Share dividend yield of 2.2%pa is not attractive.
A consequence of the compression of interest rates into an ever narrower band above zero is that the differences between the various yields offered by different products become smaller. I have uttered this particular piece of stockbroker heresy before but repeat that the 2-year RSA retail bond paying 7.50%pa seems attractive for those who feel that inflation will not be a threat in that period and that Governor Marcus will continue to lean on the “repo down” lever.
A few years ago Analyst O’Neill decided that Brazil, Russia, India and China displayed sufficiently similar economic and social characteristics that a pithy term would be useful when referring to this class of significant but not yet fully developed countries. He coined the acronym BRIC as a sort of collective noun. It has now turned into some sort of club which this week invited SA to join. Why this is important or good is not immediately obvious but it sure made the rand improve yet further and at R6.75/$, the latest annual GDP figure of R2.6tr converts to $380bn.which places us around 20th on the world leader board – next to Switzerland! Many other developing nations appear much higher up the board with scores of more than double this figure so they are puzzled and hurt at being ignored by the self-appointed BRIC selectors. Now our own President Zuma was hanging out in China just recently, so we can conclude that he must have been handing out  glossy pamphlets highlighting the many attractive snow-free venues available in SA for future BRIC luncheon dates. It obviously worked.
Tidemarks tries to avoid making forecasts even on tempting occasions like the start of the year. As usual, the proper analysts are moaning that this time it is harder than ever to see what the future holds. Nonsense.  Any dive into the future always carries exactly the same degree of difficulty – impossible. However, I do think that next year’s implementation of the long promised change to the way that dividends are to be taxed may cause alarm and despondency amongst investors.
Basically the switch from the current 10% Secondary Tax on Companies to a 10% Withholding Tax on Shareholders should provide work only for accountants and similar species. The amount of tax collected by the National Treasury as dividends flow from companies to local shareholders ought not to alter materially. However, there are numerous potential sources for confusion and misinformation lurking in this landscape, and just one alarmist headline could easily lead to panic. As already discussed, dividend yields are thin enough and any threat of further trimming will be unpopular. My belief is that companies will need to declare their dividends both pre- and post the Withholding Tax and I, for one, expect that the post-tax figure will be the one to use when comparing prior years and dividends. As I said, there are ample sources for confusion.
But I am not confused when I wish all my readers a very happy, safe and healthy New Year. Prosperous will be good too.
Even while the Proteas were making a total mess of the test at Kingsmead the local newspaper was treating Sharks fans to pictures of their boys stripped down and training in the equally muggy stadium next door. Seriously guys, it is still December, just.
James Greener
31st December 2010.

Tuesday 21 December 2010

WHAT A LOTTO I GOT


There are a few more trading days left in 2010 and it looks as if the All Share may just fall short of  breaching the 33 309 peak set in May 2008. Mind you, one Christmas-tide many years ago the Russians suddenly decided that they needed to learn about Afghanistan the hard way and that popped 5% on the index overnight. So far the overall market index has delivered around 17% total return for the year. That will be way better than most investors were hoping for or pundits were forecasting which probably means that most of us will have missed much of the rise by being too liquid. And interest rates came down too. This is a very difficult and weird game.
It may be worth pointing out that the actual quantum of earnings being reported by the Top 40 companies today is about the same as was being declared way back in 2007. In the intervening period, after one more quarter of excitement the credit crunch snapped down, earnings collapsed and it has taken many months of hard work to recover even this far. But share prices today are nearly 15% higher that they were then, which implies that buyers are expecting a very significant improvement in company profitability into 2011. In my view there is little evidence to support such a development. There is a rather too much hope and faith resting on the promise that the government’s infrastructural spending plan is well underway. Indeed construction has been one sector where earnings have not improved in recent years.  My own suspicion is that because of corruption and maladministration much of budgeted expenditure has been diverted directly into private consumption without first having travelled through professional services, procurement and fabrication. It is alarming how many businesses appear able to declare director’s bonuses before actually starting the task they have been appointed and paid to do. This model neatly deals with the expected profit margin up front without the tiresome and messy task of doing and completing the job and then preparing accounts to see if there is any profit left over.
It is just too easy to poke fun at the World Youth Festival which appears to have been particularly successful in attracting rain if not the advertised celebrities to drop off in Pretoria. The theme of the festival is “Let’s defeat Imperialism” - a term which my reference suggests is not easy to define today and which is now often used as a term of abuse. Nations practicing “true” imperialism are rather thin on the ground in the early 21st century although some particularly skilled and well trained youth claim to be able to detect “ideological imperialism” just about everywhere.. I would have thought that gambling and lotteries were despicable Imperialistic practices, nevertheless the festival organisers were extremely efficient in liberating a useful R40m from the Lotto, an act that has proved to be just about the last thing they have managed to do successfully. The defeat of imperialism has given way to the more bourgeois matters of shelter, warmth and food. The good news for the rest of us is that it cost taxpayers way less than a single world cup match and some of the delegates might actually like the place and return one day as rich tourists. The KZN delegation, however, has already returned as grumpy kids.
All year two quite big and sometimes excitingly violent rows have been taking place where the only people interested are the participants and the newspapers, thankful for something to fill their pages with. Both concern organisations known by their four letter acronyms which if they settled down and worked properly might make a huge contribution to the country. In the mean time the rest of us will continue to have no interest in either the SABC or COPE.
The way the third Ashes test is going, I think all 22 players might be asked to undergo a lie-detector test or donate a sample for analysis. It’s a funny game cricket – but not weird.
James Greener
17th December 2010
 

Friday 10 December 2010

HOW DO YOU TURN OFF THIS INTERWEB THINGY?

After two weeks of news isolation while exploring a corner of the Kruger Park, it has been great fun to return to the absolute furore being caused by Wikileaks. This is yet another wonderful example of how people – especially those who claim to be in charge – utterly fail to grasp how the internet is completely changing the way the world works. If these documents that are now public really are as sensitive as the spooks claim, then perhaps they ought to have done the job for which we pay them and kept the darn things properly secret. As it is, so far all the documents have revealed really is the unsurprising truth that politicians, diplomats and bureaucrats are just as grubby, self-interested, clueless and fond of gossip as all the rest of us. Their attempts to prevent us mere plebeians and taxpayers from finding this out are almost as amusing as watching the stammering denials that anyone ever wrote that the president of a neighbouring country was mad.
The JSE, and indeed most other share markets are enjoying almost the complete opposite of free fall as investors and speculators search for alternatives to keeping money in the bank. They are also not buying bank shares and that sector continues to fall away relative to resources and stocks with more direct exposure to consumers. The Transvaal holidaymakers have appeared in the kingdom in their thousands and a trip to the malls shows no sign of shopper’s shyness. A newly listed instrument that offers buyers exposure to the price of crude oil in units of rands per barrel is yet another currency hedge vehicle to consider for the time that our dear rand falls from grace.
Do we not have more productive things for people to do than trawl through company reports counting how many women work in the place?  Presumably it is us taxpayers who employ these folk to howl with outrage at their discovery that “companies demonstrate a lack of coherent gender transformation […] polices, with little evidence of […] designated responsibility measured through performance management mechanisms”.  No one trying to run a business where people are employed on the basis that they add more value than they get paid, have any desire or time to understand let alone implement nonsense like this. I wonder what will happen to the small firm that they found that did not have any men on board.
Not only has the pres generously cancelled the R1.1bn debt that Cuba owes us for kit bought more than ten years ago, he has lent a further R1.4bn to this obviously high risk borrower and in return the younger Castro pinned a medal to his chest. Hey! That’s our money you are dishing out sir, even if it is a lovely gong.
I also missed the third quarter GDP announcement – not all that encouraging  – and Minister Patel’s magnum opus on how to get the country growing by getting more government officials to offer advice and give instructions on how the rest of us should do stuff. That’s not much good either. A good research piece in Biz Day by Annabel Bishop points out that public sector remuneration is growing by almost 30% pa because of both higher salaries and new hires. There’s your first problem right there minister. And please also note the calculation that adding the proposed health scheme to the spending side of the budget might require marginal tax rates of around 70%. Oh dear me, no.
Equally disturbing is the picture of a man in loin cloth who was trying to raise awareness of some doubtless critical issue at the climate talking shop in Cancun this week. Please note sir that despite its reputation for balmy weather there can still be some unseasonably cold spells in Durban in December and you might need to pack more gear for your next appearance.
I am delighted to report that I was watching a pack of wild dogs at the time when I could have been witnessing the Scots feasting on Springbok.
James Greener
10th December 2010