Friday 11 January 2013

LIFE ON THE OCEAN WAVE



The JSE All Share index is now in its sixth month of almost uninterrupted ascent and it is hard to remember any specific pieces of good news in that time that might normally be expected to drive such optimism. There were, however, all kinds of what might be considered bad news, only they weren’t. Investors are looking through the problems and pitfalls that we analysts wail about. Instead they have firmly believed, correctly as it turns out, that most companies are still able to find customers and make sufficient money to distribute to shareholders. In the last 10 months the dividends paid by the industrial / financial sector have been growing at a rate of almost 20%pa.  That is astonishing, especially if you believe the story that the nation’s economy is growing at barely a tenth of that rate. It feels as if trouble ought to be brewing.
Developments in this land are providing incredible material for future generations of economic historians. One intriguing event this week was the demand by an idiot that overseas customers for fresh fruit should now cease to buy from South Africa. The reasoning apparently is that this will punish those farmers who are suspected of underpaying their workers. I trust someone has pointed out to him that in the absence of sales there will in fact be zero wages.  The cynical amongst us know that there is in fact scant real concern for “the workers” in all this fuss and it is about the organisers getting recognised and invited to join the gravy train in the more luxurious coaches closer to the restaurant car. The blame for the ruined industry they leave behind is shoved onto the usual legacy scapegoat.
Globally, unemployment is becoming a giant headache and the obvious conclusion is that the policies and actions of the pinheads who claim to run our countries was the cause of this calamity. And yet they still demand our votes and support so that they can “fix” it.
Is there not  a set of prices (wages) at which each one of us would, metaphorically speaking, be prepared to take in someone else’s washing, thus providing a cascading chain of value-adding employment?. The problem is that politicians and their satrap bureaucrats have broken the chain by promising that in exchange for us electing and supporting them,  no one will need to do the most menial and lowly jobs in the chain. They will, they say, “redistribute” the wealth from those so obviously undeserving at the top of the chain to the hordes at the bottom. However the plan doesn’t work for long. Or even at all.
This is a message that has not apparently been grasped by someone who is now always referred to as “the billionaire businessman”. This is Comrade Cyril Ramaphosa, who has just been chosen by the ruling party to be the nation’s next deputy president. To demonstrate his struggle credentials and to cover his embarrassment at holding a seat on the board of the deeply troubled Lonmin platinum mining company, he has offered some alarming ideas about redistribution. His thinks that in addition to paying workers a salary, employers have an obligation to ensure that their employees enjoy some unspecified minimum standard of living. Some of the implications of this view are that it patronisingly suggests that employees make flawed choices when spending their salary. It also says that the salaries are inadequate and so commits each company to a quite unknowable extra cost and duty to help that employee attain and then maintain the desired standard. There is no denying that far too many people in this relatively wealthy country live in appalling conditions and it is in a politician’s job description that they need regularly and loudly to promise to change this situation. Comrade Cyril’s government has indeed achieved a great deal of success in using taxpayers money to alleviate hardship, but to mug them as shareholders for the same cause seems very wrong.
I am now going to St Helena Island. Napoleon as well as number of Boer prisoners of war died there. So (temporarily) will my ability to see what the markets and politicians are doing. The next Tidemarks will be written only in February.
James Greener
11th January 2013

Friday 4 January 2013

CLIFF HAS LEFT THE BUILDING, NOW PLEASE MIND YOUR HEADS



The USA’s financial and political whizz-kids have managed to delay yet again an aggressive attempt to get their government to spend less and tax more. Regardless of the positive impact that might have in reducing the deficit, it was feared the adjustments would plunge the nation over a fiscal cliff and back into recession, After acrimonious and lengthy debate, an 11th hour decision to replace the plans with a much gentler program unleashed a raging bull market in share prices that lifted our own All Share index to over 40 000 points. Just why this American decision was such good news for company earnings in SA has yet to be explained. But the failure to tackle the deficit in a serious and meaningful way unavoidably brings much closer the moment when the US government total debt will bump up against the so-called Debt Ceiling. This is another event which causes all-night meetings and loud shouting and brinkmanship. But inevitably there will be another last minute decision and the Ceiling will be raised. There actually is no alternative. But the debt remains the elephant in the room.
The fellows in Washington perform these rituals frequently and indeed they can go on doing it almost for ever. Or at least until the folk who are lending the US the money to feed Jumbo become concerned that the interest they are being paid is actually their own money coming straight back to them after passing through the pachyderm.  Normally the scam of getting later investors to fund the returns being enjoyed by those who were earlier to the party is called a Ponzi scheme. But the US government’s version of this game is now so large and self-propelling that no one has the courage to call time-out and say that they no longer wish to play and please can they have all their money back. They know it can’t happen. Simply put, the idea of the USA defaulting on its debt is unthinkable.
And it seems that so is the possibility that a bear market can ever happen again.
At 26.7% the All Share’s performance in 2012 was way better than the long term average of 21% and the best year for returns since 2006. This happened even with the Basic Material sector delivering just 5.4% and was driven largely by the two consumer groups (goods and services) both of which easily exceeded 40% for the year. Even the banks did 35% during 2012.
The government’s threat to get tough with tax advisers is yet another response born out of the completely erroneous belief that taxpayers willingly contribute to the fiscus because they like to see the state spend their money for them. Bureaucrats can’t seem to accept that people pay only as much tax as is necessary to stay out of jail and any advice that costs less than the tax saved is worthwhile.
Amid a welter of foolish self congratulation by people who actually had very little to do with it, about three quarters of last year’s school leavers were told that they had passed the final exams. Here in KZN that translated into 47 newspaper pages of results which immediately triggered the thought: Where on earth are all these kids going to find either further training or employment? The local provincial head of education seized on the improvement in pass rate as an excuse to “throw a big party” but one wonders who would be invited as none of the teachers or pupils that I know seem to have been. I do know who will pay, however. I hope but doubt that any political decision-makers are as worried as I am by that very long list of names and the huge difficulties most of them will face in order to fulfil their potential in the systems we have created for them.
The first test against the Black Caps has just come to a very satisfactory conclusion. One commentator explained that there is only a small pool of blokes in those cold islands from which to pick a team. That’s a pathetic excuse. From the same pool they find a team four men larger that beats everyone at rugby.
James Greener
First Friday of January 2013