The markets are frankly a mess. News items which in the past may have elicited one type of response are now just as likely to have the opposite or even no reaction. In the USA there are signs of yet another fad in buying shares in hectically overvalued companies where the assets walk out of the door on two legs every evening. Another bubble appears to forming around the huge numbers of very rich and label-obsessed Chinese who have discovered shopping as a contact sport. Best to keep one’s head down and stick with the larger, financially healthy, well run and established companies that make and sell stuff we know and understand.
Once again the total absence of any formal economics training makes me unable to make any sense of the idea that lending money to Greece to help it pay its debts is either sensible or, more importantly, mathematically valid. At the end of the charade, Greece or which ever the particular basket case of the moment might be, is still in debt. Perhaps it now owes different people, but even that is not certain since there seem to be only a limited number of sources that have any money to lend. Follow the trail back through the thickets of lenders and borrowers and it is quite likely you end up at the door of the very same institutions that made the now obviously bad decision to lend the original sum to Greece in the first place. And too often the deeper tragedy is that those lenders turn out to have been using some else’s money left with them for safekeeping. It seems sensible that governments ought constitutionally to be forbidden from spending more than they collect and that debt in public enterprises should be used only for financing identifiable and specific infrastructural projects. It is wrong that an investor or lender of any amount should expect or demand a rescue from some benevolent third party – more often than not the tax payer – if it turns out that the counterparty fails to deliver.
The taxman’s complaint about shrinking revenue is a similar issue. A few years ago the government made the erroneous assumption that owning shares in a company is the path to instant prosperity. From this idea grew the policy of political allocation of resources which companies were strongly encouraged to facilitate. Since in most cases these empowerment schemes were characterised by a chronic shortage of actual cash it was surely obvious that companies would try to get the state to plug the gaps, since it was their idea in the first place. Elaborate deals were therefore concocted in which tax payment minimisation played a part. Hence the taxman’s moans. This will of course be yet another example of the failure of command economics that its supporters will ignore and deny.
An impressive number of cell phone owners have RICA’d themselves with ID and proof of residence. The proportion is well above 95%, and since the stated objective of this annoying and intrusive piece of legislation was to help cut down on crime it is sad to see no report of this happening. Presumably that means that it is the people who have so far failed to RICA who are the ones responsible for all the crime and it should be simple to go out and pick them up. No, wait, we don’t know where they live. Uh Oh.
Investec have refreshed their delayed issue of a new variable dividend preference share. The interesting aspect of this counter is the very high (95%) fraction of the benchmark prime interest rate that will be used to set the dividend amount. They declare specifically that this is in preparation for next April’s change in tax legislation when dividend withholding tax at 10% is scheduled to be introduced. Other issuers will on that date have to adjust the fractions on their preference shares upwards to compensate shareholders. Until then the price of this INPPR will be presumably be high relative to the others.
I am told that the Bulls Sharks encounter this weekend is the BIG ONE. It will undoubtedly be fierce, and perhaps even a bigger game the World Cup final in a few months?
James Greener
17th June 2011
