BEAR IN A BAD HAT?

When something happens or more difficultly when it doesn’t happen in the markets, a reason has to found, presented and discussed. This week’s big downward correction by many prices on the JSE was laid at the door of the US Federal Reserve who, it is feared, may be thinking about doing something. Whatever that may be, there it raises the possibility that companies in SA will make less  money than they currently are able to and so clever folk are selling their shares (to less clever people).  It is the tenuous logic of this reasoning – which equally uses the same excuses for upticks – that makes the short term trading of shares for a living so exciting and terrifying.

Investors, on the other hand are happy merely to increase their holdings in well managed companies during periods of good relative value. Incidentally not even this large correction has yet created such a period.  Selling is largely unnecessary unless it turns out that one’s choice of a company was poor. Large-scale selling to avoid those generational and substantial collapses in the market is very difficult. Analysts who call those moments are more frequently roasted than remembered.

Considerable excitement accompanied the news that the consumer inflation rate released this week and based on a new re-weighted basket, was down from the previous month. What it actually means is that some sheltered number-crunchers in the employ of government have been able to construct a basket of consumer goodies, totally unlike any that you and I would recognise, in which the prices are not going up quite as fast as before. I suppose that a detailed study of the methodology would explain why the official inflation appears to be less sensitive to the terrifying increases in many areas that most of us are experiencing.  It does probably mean, however, that borrowers will enjoy the current low interest rates for a while further. Savers will suffer.

Dr Ramphele reportedly deserves respect for the very many high powered posts that she has held (but apparently not filled for very long). Unfortunately her choice of an ethnic headdress that sported Goofy-like ears detracted quite a lot from the gravitas of her announcement of the formation of a new opposition group in SA. Naming the new party A gang was rather smart though, as it our collective noun of choice for politicians.

Nestling alongside the Joburg city council request for businesses interested in fixing the city’s weighbridges is the far more important invitation for people to provide banqueting for the Office of the Speaker. That word, banqueting, should set off the alarm bells for the ratepayers. Yet again, reports are emerging about the dysfunctional morass into which Joburg’s record keeping has slipped. Like probably many readers I am awaiting a refund from the city but have been told that as all records previously delivered in the prescribed manner are now lost, only a visit in person will suffice. I don’t think I shall try that one. Fortunately the sum is not large and will amount to no more than a glass or two of wine at the next banquet. Very good wine, naturally.

So the Super 15 rugby tournament gets going in SA this weekend and 120 matches – not including the play-offs – loom ahead for dedicated fans. Each of the teams has to play half of their scheduled 16 matches away from home with half again being played in another country very far away. It is puzzling that SAA can’t make a decent business out of all that demand for seats. Sadly they seem to be mired in yet another squabble about who will be next to exit their post with an outrageous payoff for flying the national airline into the ground. The rumour is that the new logo about to appear on the aircraft tail planes is an executive revolving door.

James Greener

22^nd February 2013

HOW MANY NKANDLAS IN A BILLION?

A certain amount of excitement has broken out among the rent-a-quote analysts, some are confident that the current bull market has a long and healthy future. Of course I don’t know if this is so but it may be worth pointing out that the PE ratio of the Financial & Industrial index (i.e the All Share index less the capricious mining and resource shares) has just set a multi-year high of 18. Obviously within that grouping there are shares with ratios that are both higher and lower, but that does look like high-risk territory to me.

First impression for those who unwisely switched on the TV last night was that the SABC was broadcasting a sort of weigh-in session for an upmarket weight-loss club. It turned out to be a gathering of the great and good to listen to President Zuma deliver the poorly-named State of the Nation address. Most of the rest of the nation who did not get an invitation to waddle up the red carpet would have imagined a shortish speech, along the lines of “pretty dire” or “rather dodgy” would have sufficed. However, the president instead used several thousand words to complain that he and his cronies need more money to carry out their plans and that it was from us they were going to get it. The actual details of the mugging methods will be revealed in Minister Gordhan’s Budget speech about 10 days off. This writer thinks that the communists that infest government will be influential in crafting a severe budget that will target anyone who dares to make more profits or acquire more assets than approved of by the comrades.

There is a delightful irony in the protests against imposing tolls on the new roads around Joburg. The collection method relies upon being able to identify each vehicle passing a toll point rather than the more usual toll plaza where drivers (generally) have to stop and fork out the moolah. In order to collect the fees therefore, the tolling authority is supposing many things. These include the presence of a valid or indeed any number plate on every vehicle, that the number on the plate is linked to a valid postal address, that their administration and the post office will not drown in the task of despatching tens of thousands of notices daily and finally that vehicle owners will take a blind bit of notice if and when they get the toll fee invoice. Ignoring traffic fines could easily replace wrestling as a widely enjoyed Olympic sport here in SA. The reason for not using an extra fuel levy to finance these new roads is probably that revenue raised in this way (like almost all special imposts) disappears into the government’s general revenue fund from where a long list of fiercely argued and higher priority spending needs will loot it long before the road maintenance team can claim their share.

We all wish the SA Mathematics Foundation every success in raising the money they need to host the International Mathematical Olympiad in South Africa. Their gamble in taking an eye-catching full page advert must pay off. It reveals with polite sorrow that the government (which has just poured unimaginable millions into the black hole of a soccer tournament) is unable to provide them with any funds. Surely private donors will now come forward to fill the professors’ very modest needs? Let’s hope that the Foundation totally refuses to let any minister or state representative anywhere near the proceedings and especially the catered receptions next year until they have passed a test which includes long division without a calculator.

Last weekend they swam. This weekend they paddle. It’s a never-ending fit fest here in the kingdom. The second cricket test against Pakistan is developing into a good contest and the Lions beat the Kings despite the appearance of some interesting names in the PE side. There must have been big cheques changing hands.

James Greener

15^th February 2013

UNEXPECTED BENEFITS FROM PAYING TAX

This morning, the All Share index failed by just 17 points to burst above 41 000. This bull is alive and well and determined to take charge. Buyers are loading up, unconcerned that sellers are demanding and getting ever higher prices. Is there no news that might cause pause or caution? Or is it that being invested in shares beats keeping your cash just anywhere else? It’s this latter reason I think. It certainly makes a mockery or trying to make prudent and sensible stock decisions. Just close your eyes and buy!

Suddenly its budget time again and it feels as if there has been a moratorium placed on cabinet ministers making foolish statements. Are we being prepared for some really bad news? As pointed out last week, the revenue collections are slipping ever further behind the spending programs so the need to find some extra sources of significant cash through taxes is very pressing. Forecasts that Minister Gordhan is going to soak the rich also correctly point out that this would not raise a great deal of money. Reportedly there are just 2 500 taxpayers whom the tax man thinks are really rich. If they each chipped in an extra R1m of tax a year that’s a mere R2.5bn which on current form the lads and lassies at National Treasury would whistle through in less than a day and a half.  However, at least one talking head feels that targeting the rich is still a good idea because it would “creat(e) social cohesion and improv(e) the integrity and morality of the tax system. It is politically the right thing to do.” Well that’s certainly debatable. Isn’t the tax system in place in order to raise money and not to make everyone glow with civic pride? Data shows that like many nations, our budgetary problems lie largely on the expenditure side. The country simply can not afford a government with so many unproductive employees on its payroll, nor supply so much in handouts to the needy. It is indeed a terribly difficult dilemma and perhaps explains why wise people don’t enter politics and attempt to resolve it

Here in the investment industry, already every activity we do (buying, selling and collecting income) attracts a tax of one sort or another, so can we hope to escape the net this time? Probably not. Socialists just love trying to modify behaviour of which they disapprove (in this case trading for profit) with taxes and levies that make no sense. Muttering has been heard about a change to the buying tax. This is alarming and if enacted would substantially threaten liquidity on the JSE in return for a relatively miniscule income. The infamous plastic bag levy is a great example of this type of foolish legislation. It collects a trivial amount of money, which disappears into the general revenue account – at some unknown national administrative cost – and still trees and fences are festooned with the discarded bags and packaging.

It’s alarming to see hints that Eskom may be slipping back into the fantasy realm of thinking that small coal producers armed with a wheelbarrow and two shovels can make a contribution to the coal supply needs of the giant utility. However laudable and understandable supporting small entrepreneurs might be, the fact remains that their customer is a heavily populated country reliant on large extractive and manufacturing businesses who simply can’t tolerate disruptions to the power supply. I wonder what truth there is to the rumour that the last time we suffered rolling blackouts (aka load-shedding) due to similar mishandling of coal supplies, Eskom board members and executives were fitted out at state expense with emergency diesel generators.

Even if this weekend’s Midmar Mile swimming event is the most appropriate sport for the current weather, local rugby kicks off this weekend. The match of greatest interest to me will be the showdown between the Lions – relegated from the Super 15 -- and their replacement the Kings, from my home province in the Albany Thickets. This could get nasty.

James Greener

8^th February 2013

BLOWING IN THE WIND?

Things are getting pretty tetchy at the door of the National Treasury coop as more and more chickens are struggling to get home to roost. This week it was revealed that in calendar 2012, our politicians and bureaucrats managed to spend a record-setting amount of R184 bn MORE than even their sleek computerised revenue collection services had extracted in taxes. This 12-month deficit is almost 25% larger than was reported a mere six months ago. The tax eaters are pulling on their spending boots now that their role model and figurehead has been confirmed in the top job for the next half dozen years. However, bond yields actually declined a bit showing that no one has any worries that people will be hesitant about lending money to Zuma and his merry bandits in order to cover this shortfall. Curious.

Also curious was the sight of the dollar losing ground versus the euro. The side with the currency that will now buy 12% more dollars than it could in July  is an assorted mismatch of quarrelsome nationalists all lying to each other about their finances and determined to get someone else to pay for their time in the sun. The declining currency, however, belongs to a single country that still runs, by a good margin, the largest economy on the planet and which amazingly is showing signs of gradually pulling itself out of a debilitating slowdown. Maybe there were things whispered in the bars at the Davos knees-up that have not yet filtered down to us mere mortals. The US bond market is weakening, with 10year yields touching 2%. Although on a chart, the 50bp that have been added to this yield in the last few months look benign, the reality is that bond holders will have taken some pretty hefty losses. All that creaking in the rigging suggests that the winds are picking up.

Anyone looking for more financial puzzles can mull the local share market which delivered a very useful 3.2% last month. This was despite double digit declines in many of the retail shares and more backsliding from the gold and platinum miners. Their woes were exacerbated by the Minister who drew on her total lack of any experience at meeting growing payrolls while losing customers to deride mine management’s plans for survival. If you think she was unreasoning and angry then, just wait until she finds out that no profits implies no taxes paid. Most of the heavy lifting in the index came from the two effective rand hedge stocks of SAB Miller and Richemont which propelled their sector indices also by double digit percentages.

Obviously my decision not to drink beer in January (nor to buy expensive handbags) had no impact at all on projected earnings of these two companies. However, this nation’s love for and obsession with a winning sports team is a wonderful and exciting phenomenon utterly misunderstood and ignored by the self-obsessed kelptocrats that so mismanage our sport. At last someone has told Bafana that the object of the game of soccer is to hoof the ball into the opposition’s goal and that there is no need to perfect the victory dance routine without doing that several times first. The city here is incandescent with excitement as our team advances to the quarter finals in the Moses basket stadium here tomorrow. If we win, the budget deficit can go to multiples of GDP for all anyone will notice or care. Now that the minister of sport has all but declared the Proteas' captain Graham Smith a National Key Point  perhaps he too can expect serious upgrade to his digs?

Visiting St Helena island in the mid-Atlantic fulfilled a wish. Like most isolated places it is unique and intensely fascinating, however, it would be a good idea not to annoy the Brits as  it is still their destination of choice for banishing people to. Napoleon and 6000 Boer war prisoners were not the only ones sent there. Only a nine-hole golf course and no Wimpy or sandy beach. Rather windy too. A challenging spot to live in for any length of time, ask the Basil Read chaps there building the airport

James Greener

1^st Beer Day 2013