Friday 27 May 2011

COMRADE BULL GOES FOR A GREEN NUMBER


At one point it looked as if we were going to suffer a worse than 3% decline for the All Share index in May. But now the JSE has just been invaded by bulls. Buyers are chasing after shares apparently confident that the economy is improving and order books are filling up. The index is back over 32 000 and running. But there are a few days of the month left and we all know that anything can happen.
It is noticeable that the Swiss Franc strengthened all week and the gold price continues to perform well. These are “safe haven” assets, so clearly I am not alone in being unconvinced that everything is OK. The US’s second bout of so-called quantitative easing has ended with not much to boast about in terms of recovery. Will they try it again? Are we witnessing the beginning of the end of the universal power of the US dollar?
 Nothing much has changed in Europe. This was the place causing us so much concern just a week ago. Except now Greece’s likely default on its debt will be called a “soft” restructure.  At home, the election is over and every politician is claiming some sort of victory. The really good local news is the cabinet’s decision not to pursue a bid to host the Olympic Games down here on the southern tip. For possibly the first time in my life I find myself in agreement with a government decision.  Mind you, after this week’s cold snap and snowfalls, some bright spark will probably start waffling about having a go for the winter Olympics.
The commission who have to find a solution to the problem of why the nation’s motorists are very unhappy with new toll roads in Gauteng have asked for more time to complete their task. They will have noted the poor timing of this week’s announcement that a compulsory third-party vehicle insurance scheme seems like a good idea. One concern about the scheme is how it will be funded. No prizes there. It will paid for by be the same vehicle owners whose rightful objections about the costs of travel have delayed the implementation of the tolls.
A rather interesting side to this topic lies in how the post office is going to handle the tens of thousands of toll invoices that will apparently need to be mailed to motorists, many of whom have no credible address. In the meantime the folk who put up the cash for building and upgrading these highways must be wondering if and when they will get their money back.
For many who once upon a time rode the rails with SAR & H, the name Cookhouse will conjure up memories of a long platform, a dusty dorp and an occasional supply of warm home brewed ginger beer and very little else. Apparently it is a rather breezy place (what happened to the Windy City – Port Elizabeth?) and has been selected as the site for a large farm of wind turbines. The nation is looking to this corner of the Eastern Cape to keep our kettles boiling and TVs running once the coal runs out. I am bursting with pride. And then just a few miles down the railway line there is an even smaller junction hamlet called Alicedale where brave and ambitious entrepreneurs have created a property boom. Astonishing.
I am not embarrassed to report that while thousands of people will be wondering why on earth they thought it would be a good idea to run uphill from here to Pietermaritzburg in the Comrades Marathon, I shall be on the couch supervising the Monaco GP. If it’s running you like, then the Sevens from Edinburgh should provide lots of that. And if I get desperate for even more exercise there’s the Man U versus Barca clash on Saturday night. I shall be worn out by Monday.
James Greener
27th May 2011

Friday 20 May 2011

MY INFLATION IS BIGGER THAN YOURS

So that was yet another one of those short weeks. This time we took Wednesday off to vote. The JSE All Share index has become rather range-bound and peaceful. It is a relief that the election is over and we will have a break from having to sit through threats and promises none of which will ever happen. There are probably very few listed companies that will feel an immediate impact from the election result. The wave of company reports now swelling the newspaper pages are as usual mixed but the business of lending money does seem to be trickier than before. The brewer of my favourite lager seems to have found new customers to replace my demand that has been reduced for reasons of weather and weight gain. The bond market has gone sharply stronger. Presumably the feeling is that an increased opposition presence in the council chambers of the nation might somewhat slow down the larceny and looting of public money.
One of those periodic squabbles about inflation has broken out. Many people feel that their purses and wallets are under far more pressure than the official numbers claim. They are probably quite correct. The CPI is theoretically an average of everyone’s shopping baskets and therefore is not equivalent to any single one. However, despite that, I have never met anyone whose personal basket has under performed the CPI. Doubtless we will soon see a tirade from the eccentric and irascible Chief Statistician who will defend his figures and ridicule those of us who don’t understand “how to do statistics.” In the USA, a project using the internet has been launched that aims to use thousands of consumers to sample and report millions of prices more or less continuously.. It will be interesting to see the results. The bad news of getting a higher inflation figure than the official one is of course that unions and workers will seize on it when wage negotiations come around. I am not sure what will happen if the project reveals an inflation number more benign than the official statistic though.
After yet another round of most Central Banks – including our own – deciding that the price of money is just perfect and there is no need to raise interest rates, lending is still not really growing. In the US, housing prices are falling markedly in several areas and many mortgage holders owe the bank much more than their property is now worth. In some cases the householder has stopped repaying that debt and, confident that it will take a year or more for eviction to be enforced, is using the money to cope with rising fuel and energy prices. It is all very messy.
While there are dreadful personal tragedies surrounding the debacle, it is hard not to find huge amusement in the fact that a large and deeply self important international bureaucracy received a note from its CEO regretting that he would have to quit since he was in prison. Surprisingly a rather undignified scrum of candidates has formed for this cushy job involving luxury travel, lengthy meetings and laborious press statements. Even our own Mr Manuel has reportedly thrown his hat into the ring. The scandal has had the welcome effect of bringing the IMF into the public eye especially in the USA where tax payers are stating to ask questions. Why, for example, are they the largest supporter of this slush fund which seems to spend its money firstly on creature comforts for its own staff and secondly on hand-outs to dodgy work-shy foreigners.
It is painful and embarrassing to me that cricket is now so obviously ruled and played by many venal scoundrels. Sadly, SA was one of first places to unearth them in the top levels and the lack of respect for the supporters is still present despite that dreadful episode. I was even rather grateful not to have to watch the national captain run through his list of clichés and platitudes about getting stronger and learning from failure because he chose not to return home after the World Cup. Now we have the dreadful sight of the sport’s bosses denying that they have stolen money that so clearly should not have gone to them alone. Is the Super15 crooked too?
James Greener
20th May 2011

Friday 13 May 2011

Your Money has Gone. To Greece, Ireland ….


I wonder if the folk who run Wal-Mart are used to seeing everyone rushing about screaming that the sky is about to fall whenever they try to open a store in a new area? Many people seem to have no doubt that when they begin to operate in South Africa, our way of life will come to an end. Perhaps, but why not let Wal-Mart risk their money and see if there are people in SA who are prepared to work for them and shop with them despite the dire predictions of calamity.
 The world’s economy is the net result of several billion individuals trying to make a living and almost two hundred governments supposedly helping but mostly not. It is therefore unsurprising that that such a large system has so far proved impossible to model and make reliable predictions about. One particular string in this skein has been making headlines and goes something like this. Citizens Janet and John have spent less than their income and so amassed some savings. Dutifully but reluctantly they pay tax and note that, unlike themselves, the state almost always spends more than it collects and so needs to borrow money. This it does mainly by selling government bonds.  Janet and John are disinclined to buy these bonds because they reckon the government’s spendthrift ways suggests that it is not a good risk. They choose instead to place their money safely in their bank where they hope it will even grow a little.
The banks, however, do buy those bonds. This is because a) they use Janet and John’s money b) they often collect a large fee from the borrower when they arrange to issue the bonds and c) they are undoubtedly smarter than Janet and John at assessing risk. Even better, they are often smart enough to buy bonds from far away countries.
Eventually, however, unless it mends its ways, a profligate government’s debt catches up with it and it has to “restructure” and even “renege”. Restructure is the fancy term for telling people who lent you money that you will not be paying back the interest or the principal as fast as you originally promised. Renege is a simple term for not answering the phone when the folk who lent you money call to see why you haven’t paid them back. Oblivious to all this, Janet and John stroll down to their bank to reclaim their savings only to be told it has “gone” because such and such a government or borrower has restructured or defaulted. Disappointment and anger ensue, followed by demands that the “government do something”. For reasons that have a lot to do with politics and influence and the belief that certain banks were “too big to fail”, governments stepped in with tax payers money to bail out some of those banks who had obviously made dreadful lending decisions. The bank’s own bond and shareholders were thus spared the embarrassment of finding that they were invested in a badly run company which had gone insolvent. Some of us think that should have happened. So if Janet and John were lucky enough to have used a bank that received a bail-out they get their money back but are not sure if they are up or down on this deal.
Recently the voters of Finland instructed their new government not to use any tax money for bailing-out anyone who had lent money to governments who find themselves “embarrassed”. The Germans too have become restive about bailing out those who thought it a good idea to lend money to the allegedly less industrious nations along the sunny shores of the Mediterranean. This week it became almost inevitable that the Greek government will have to “restructure” and this sent a ripple through the world markets as expected cash flows will be disrupted. Even our own All Share index took a tumble. The SARB’s decision to leave rates unchanged had no discernable effect.
Making sense of all this is even harder than being a Lions supporter.
James Greener
Friday 13th May 2011

Friday 6 May 2011

QUANTUS?

You do sort of wonder about how secure the state is when the government minister in charge of that sort of thing was allegedly totally unaware that his wife was running an international drug trafficking ring. I doubt he will feel any obligation to resign and just as soon as he completes his application to become a member of The Reputation Institute, will issue a bland and convoluted statement about how his wife’s extracurricular activities have had no impact on his own ability to do his duties. Earlier this week we were treated to a similar declaration when the government released a comment about the American hunting excursion into Pakistan. It must have been prepared by someone whose real job is as an economic analyst in the financial sector, so perfect was the indecisive ambiguity of the words and sentences. It is completely unclear whether this country thinks that the death of a terrorist king pin is good or bad.
The sole piece of unarguably good news to emerge from the story about helicopters, Seals and shootings was that there is a place in Pakistan with the delightful name of Abbottabad. Reportedly founded by one Major Abbott who wandered those parts in the nineteenth century, he might as easily have disembarked his boat from London a month or two earlier and now be remembered as Abbottsfontein.
Contrary to some bulls, the event has not been good for the market and the JSE All Share index has spent the four working days of the month shedding 1500 points. However the small slide in the dollar gold price may be a result of some investors believing that the world is now a better and more stable place.
It is currently a quiet time for company results and reports, but it does seem as if only those who sell consumer goods directly to the public are likely to be having a good year so far. Even the big banking groups do not yet all seem to be able to report improvements in their businesses. The petrol price now back at over R10 per litre is surely going to impact spending habits and make saving even harder. Pay negotiations season has started though and as usual the labour organisations seem to be prepared to make some appalling sacrifices with other people’s jobs in order to maintain their leadership and lifestyles. The sole solution to unemployment is for government to cease their meddling and to scrap all controls on why, how and when one party will pay another to do a task for them. The fact is that the supply of labour exceeds demand and reams of regulations mostly instruct the demand side what to do about it. The response is usually to try and do without labour and the reported decline in even the domestic labour market size shows that people are fearful of exposing themselves to litigation merely by asking someone to push a broom.
I am delighted by the story that the ATMs in the Vatican City offer Latin as a language option. Presumably there is no number pad and MM results in the machine dispensing 2000 euros. Amounts like 1385 will take a little longer to figure out. (MCCCLXXXV)
This week RMB listed an ETN on the price of coal. This is an instrument that offers a share whose price is related to the rand cost of one ton of coal being shipped through Richards Bay. Obviously there is both rand dollar and coal price risk here and I am unsure why that might be useful to most people. The previously issued ETN on the oil price does provide a somewhat indirect hedge for the local petrol and diesel consumer; as the oil and fuel prices rise, then so too does the share price.
It’s disappointing that one of the 5-day tests against Australia at year end has been changed to a T20 pyjama game. With just two tests in a series an unsatisfying draw is a possibility.
James Greener
6th May 2011