Thursday 26 April 2012

ECONOMIC FREEDOM (DAY) IS NOT CLOSE



Among the many numbers that we analysts can use selectively to boost our current view is one rather optimistically named “the leading indicator”. Allegedly it behaves in a manner that is later is echoed by the dreaded grand poobah of GDP itself. The latest published value for this statistic is down a tad so in simple terms this means that 2012 could turn out to be a slow year. If so, that would count against us enjoying decent market performance for the year as well. In fact the All Share index has been stalled for almost six weeks and the dispersion between the performances of the different sectors has disappeared. This is not the time for large general portfolio investment.
This week the broking industry got its first taste of playing tax-collector for the new dividend withholding tax. It works like this. The full as-declared dividend amount is credited to each client’s income account, whereupon a 15% deduction entry is immediately processed for every account not identified as exempt (basically all individuals and trusts are not exempt). This money is then sent to SARS together with a list of who it was collected from. In cases like Anglo where some clients have chosen to receive shares in lieu of the cash dividend, this after-tax dividend amount is sent back to the company and in due course the extra shares will be added to their portfolio. Any suggestion that SARS ought to pay us a fee for this work has been rejected with scorn and derision. Things are creeping closer to the alleged joke tax return that asked just one question of the taxpayer “How much money have you got?” Send it to us.
The furore about how to fund the company (SANRAL) that upgraded all those roads around Joburg is raging strongly. Apparently it was made clear when the project started that tolling the roads would be the solution but now the arguments against tolls range from outright defiance to detailed nitpicking of the fine print. An eleventh hour courtroom drama is taking place. Fanning the flames is the recent realisation that the promised exemption from tolls for the already belligerent mini-bus taxi industry is not certain. Here’s a suggestion for those taxi drivers. Just pay the tolls chaps and then claim them back when the exemption comes through. Surely you trust that SANRAL will swiftly refund your money?
At first glance the INet-Bridge headline announcing a new government agency to promote entrepreneurship seemed like a perfect example of oxymoron. Surely by definition anybody who can create wealth would never work in government and so the state could hardly be in a position to offer advice on such a matter. But a moment’s thought reveals the wisdom of the idea. For generations the best way to secure government contracts has been to know the right people in the right departments. This new agency, which will be born out of the consolidation of three existing but obviously ineffective agencies, should merely publish the names and family trees of influential government officials. Entrepreneurs will then pop out of the wood-work as it were. Unfortunately, closer reading reveals that the new scheme will start life already crushed by its name – SA Finance Enterprise Agency (SAFEA). All too predictably it is about allocating money—probably at the wrong price – to small businesses operating in “the 17 infrastructure projects identified by the Presidential Infrastructure Coordination Commission”. Well woo hoo. That doesn’t sound very entrepreneurial. A government committee? Infrastructure projects? Oh dear me no.
Another brace of short weeks has cropped up and all true South Africans have filled up the 4x4 with fuel and beer at R12 per litre and left for the berg or the beach. The markets will go into sleep mode until perhaps next Wednesday. There’s a bit of rugby to watch. One supremely optimistic journalist suggests that the Lions are favourites in their clash with the Brumbies at Ellis Park. That’s nice. In the meantime one does need to sympathise with the Sharks about some very odd decisions that keep going against them (or so I’m told)
James Greener
26th April 2012


Friday 20 April 2012

WHO IS KING OF THE (SAND) CASTLE?


Undoubtedly there is plenty of froth in the markets even if most investors can’t see the large bubbles that we bears are sure are there. In the USA, property prices are still falling and a very large number of house owners owe more money on their mortgage than their home is worth. Also in the US, the central bank is lending money at very low interest rates to banks that, without any one very interested in borrowing it in turn, are pleased to buy US government debt and make a bigger profit. In the Euro Zone, the patchwork quilt is unravelling at the seams as communities who believe themselves to be industrious and thrifty, deeply resent supporting others that they feel are spendthrift and idle. And here at home the government begs big business “to come to the party” (i.e. send money) while simultaneously berating them for trying to make that money. The markets have experienced many failed upside break-out attempts, but they are faced with these and other headwinds which blow business from their preferred courses of getting on with what they can do. Rather they have to do what they are told to do.
The ultimate bear’s scenario is of a significant correction that unfortunately will destroy a lot of wealth and probably scar many people but which would result in a new and solid base from where to start again.
The chaps who run the nation’s ports are going to dig a brand new one down on the site where the old Durban airport used to be. It is very exciting and it should create a lot of employment and will need plenty of spades. When finished, the new harbour will be capable of berthing two dozen ships. What is not mentioned, however, is what they plan to do with all the sand that will come out of the hole. There is only a limited market for souvenir packets of the stuff for nostalgia freaks wanting to remember the old runways. The rest is going to require some inventive salesmanship. Maybe someone in Joburg would like to build a beach resort?
Just how many athletes and administrators are we sending to the Olympics and how much will their outfits cost? It must be plenty because out of that amount the Chinese supplier has promised sponsorship of around R30m. It is little wonder that no local supplier of takkies and t-shirts was interested in kitting out the boys and girls in green and gold if this was the level of incentive required. Is this maybe one of those mysterious trades like the notorious arms deal where we expected to benefit from R110bn of so-called “offset investments” in return for buying just R60bn worth of toys for the defence force?
This kingdom thing is getting really messy. We might be in for a War of the Hibiscus. It seems that the government knew that something was brewing and took the precaution of setting up a Commission on Traditional Leadership Disputes and Claims. So far at least ten king wannabes have made appointments to meet with the commission who will need the Wisdom of Solomon to sort it all out. Fittingly the venue for the meetings is the Jewish Hall in Durban.
Perhaps the Commission will have representatives at Zuma’s place in Zululand this weekend looking to see if any of the pretenders really are A-list and have scored an invitation to the President’s wedding. This is the sixth time Mr Zuma has taken a bride but a Presidency spokesman has tried to calm tax-payers fears of mounting costs by pointing out that Miss Ngema will become just the fourth official wife. Nevertheless, her two children become eligible for 60 single domestic economy class air tickets a year – paid for by the state. That’s a lot of flying and multiplying that by the whole Zuma youth ensemble it helps explain why flights are so often fully booked. And why the Pres himself travels by private jet. He avoids having a youngster from the back of the plane creeping forward to ask if Dad could advance next month’s pocket money.
You have probably noticed that the Lions are at the foot of the log. Again. But they have won a game; unlike last year. Go Sharks (they need even my support against the Chiefs tomorrow).
James Greener
20th April 2012

Friday 13 April 2012

SHOOTING OUT THE LIGHTS


We bears are quite certain that the financial crisis is not yet over and that the various pieces of good data may be misleading. Certainly the US bond yields have fallen back to 2% and the midweek equity market flight is being reeled back in. But Europe is really still in a dreadful mess with many governments being unable to admit that all the disbursements and subsidised services that their citizens have come to expect can frankly no longer be sustained at current levels. Here at home the stories and evidence of the plight of the small enterprise is growing. Whether it is the demolition of manufacturing capacity by cheap imports or the government’s misguided attempt to control everything, turnover and conventional productive employment are under threat. And don’t even mention profits.
The state is currently spending R2.4bn a day, but far too much of that seems to “leak” straight into personal consumption without the government obtaining any services for the payments. It is further worrying that R0.4bn of this daily expenditure is borrowed money. These are shaky foundations on which to build a recovery
One can understand but not condone a government’s desire to keep certain information to itself. Like who has stolen what or which promises have not been kept or how many submarines are “out of order” or how many hours the president spent actually presiding. But how can cement sales be considered so sensitive that their release must be delayed by 3 months? Reportedly this has something to do with preventing collusion and promoting competition, but I doubt that would stand up to analysis. Just wait until the commission responsible for this idiocy hears that the JSE insists that companies reveal their accounts within 3 months to everyone including their competitors. Shocking.
So SANRAL’s campaign for everyone to have one of those electronic e-tags in their car is really born of their concern for your safety. It is not just that it gives them looting rights on your bank account but if you become unwell or suffer a car breakdown on the tolled road they maintain that the tag will enable them to dispatch help swiftly. Does this mean that the motorist without an e-tag who has paid the full undiscounted toll will be ignored if they get into trouble?
Here in the kingdom, preparations are underway at the Royal Natal Yacht Club for suitable celebrations of the other monarch’s 60th jubilee celebrations. They have wheeled out a number of cannons of varying sizes (some are titchy) and tested them for their boom potential. A 21-gun salute to Queen Elizabeth is planned for June. Undoubtedly this attention-getting ceremony will have caught the attention of those who already feel the need of a blue-light convoy to signal their importance. Expect more bangs.
Newspaper owners must be grateful that this urge for self-promotion remains so strong amongst our politicians and bureaucrats. No matter what the track record might indicate no event or milestone is thought too trivial or embarrassing not to be announced with at least a quarter-page full-colour spread in the press. The latest is published by something mystifyingly called The Department of Human, (sic) and announces awards to honour the role players in the housing value chain. This notice appeared on a public holiday just 24 hours before nominations for the accolades closed, so it is obviously restricted to insiders and not intended to recognise and reward those chains of skilful brick throwers at building sites who appear effortlessly to toss bricks from one floor to another.
Sadly the fifth annual games for members of the Non-Aligned Teachers Unions of Southern Africa received little publicity until the participants failed to pitch up in their classrooms after the weekend of sports. It seems that the journey back from the Windhoek venue was exhausting.  Hopefully organisers of the games for the Aligned Unions will have taken note of this problem and will select somewhere more central. The country really can’t afford exhausted educators.

James Greener
Friday 13th April 2012

Thursday 5 April 2012

EASTER EXCITEMENTS


A little while ago the US worthies who meet in Washington from time to time to set the price of money in the land of the free decided that the world deserved to know how they reach their decision. So this week the minutes of their last meeting were published and the markets caught the vapours. By now what the minutes contained matter less than the observation that a two week-old record of a bunch of people discussing the inevitable and obvious can cause such damage. Perhaps it has been the rise of more or less instant distribution and consumption of this kind of frothy and mostly insignificant data that has eclipsed the solid and basic indicators of the ability of each nation’s economy to grow. The more tenuous and volatile the data set, the seemingly greater the over-reaction.
It has been another dreadful week for the mining shares. Investors are clearly worried how any of them hope to make money digging stuff out of the ground when a) some people are suggesting that appetite for the stuff is waning and b) there is always someone official pitching up at the gate to deliver a new regulation. That first concern is mainly about China which has released figures that could indicate a slow-down. While there does appear to have been an political showdown in the country which is upsetting those who failed to predict it is difficult to forecast a rapid slowdown in that country’s demand for raw materials. After all the USA – one of their bigger customers – is reportedly struggling back to its feet.
Iron and steel seem to trigger a very bad response in politicians all over the world. From time to time they reach the conclusion that the folk and businesses that actually produce and use the stuff are in sore need of help and advice. The fact that most politicians have never run anything except to the luncheon buffet does not discourage them from interfering in the processes of producing and selling this rather useful metal. The latest piece of nonsense in this regard is the declaration by our wise government that they “will deem steel to be local even if it is imported”. This glorious foolishness is necessary to get themselves out of an embarrassing situation caused by some prior meddling in the market place. Bureaucrats should be forbidden to use this delightful and powerful word unsupervised. In January they deemed that pretty much any school leaver who had managed to find the examination hall and write their name on an answer book was eligible to go to university and read for a Bachelors degree. This was a cruel and misleading deem.
Long time readers will be familiar with my contention that the sole value of the wealth-destroying program of political allocation of assets is to provide material for research projects by future students of economics. Our own version of this program, called BEE, has attained a new level of dangerous absurdity in the fishing industry where “a black-owned company may not sell interests or rights to anyone who is less black”. The irony of this policy is breathtaking and terrifying, particularly if, as is expected, it soon appears in other areas of the economy. From a purely technical side, however, it would be interesting to understand the physics required to distinguish between one absence of light from another.
Thank you to those who explained that the hastily arranged T20 against India at Wanderers was supposed to be a Jacques Kallis benefit match. This is so insulting that it confirms that despite some rearranging of their numbers  the suits allegedly in charge of the game still have no idea what to do. The Boat Race, The Two Oceans marathon, The US Masters and lots of rugby will keep the telly and the couch hot this weekend. And aren’t you relieved that at least the kit for the Olympics has been chosen and shown off at a fashion show? Now can we put the same effort into nurturing the athletes?
James Greener
Maundy Thursday 2012