Friday 24 May 2013

IGNORE IT AND IT MIGHT GO AWAY



It was astonishing that neither of the newspapers I looked at this morning bothered to devote any headlines of consequence to the fact that the All Share index shed more than 1000 points on Thursday. There was a bit of space devoted to Governor Marcus’ “no change” announcement on the repo rate. And of course acres of space is devoted to coverage of the wonderful scrap amongst the politicians about last month’s Indian airborne invasion of our air force base in Pretoria. The funniest idea to have emerged from this fracas is the suggestion that name-dropping should be designated “a gross misconduct”. The bigger the name, the greater the infraction? Or does the height one drops it from also count?
 It is of course way too soon to see if this share price correction merits the title of a bear market but it does have a different feel to it. Some bad stuff has been happening to offshore markets particularly in Japan and the USA. In America there have been self-congratulationary noises that all the official interventions since 2008 have worked and the economy is now good to go. However, the merest suggestion that the Federal Reserve might slow down the flow of crisp new notes into the market spooked a few people and the recovery suddenly looked rather ropey. .
Labour difficulties on the mines – especially the platinum ones at present – are growing larger by the minute. It is hard to sort out who is speaking for whom when at least two rival unions are claiming to represent the workers. Wouldn’t it help to identify the real union support if the current patronising and archaic system of using the employer to deduct the union membership fees from worker’s salaries was scrapped? The sole beneficiary of this system is the union treasury, while it is difficult for any worker to withhold their subscription because they don’t think that they are getting value from their membership and they have something else they would like to spend the money on.  In an era when labour oversupply is a tragic reality it is important that workers are free to derive the maximum value from their efforts and not have to share it with layers of bureaucracy. Investors obviously also don’t think the present system works very well. Only the very bold and eternally optimistic are buying for a recovery at this stage.
In the light of the JSE and other authorities tightening the compliance requirements on people who work in this investment industry, the news from England is deeply worrying. Reportedly an investment advisor was unable to show that it was giving clients the right advice, and so the Financial Conduct Authority handed them a three million pound fine. Undoubtedly the devil of this story is in the detail but it does make one wary of telling folk anything beyond what the weather in Durban is like today.  Suddenly those 500 word disclaimers at the end of an email which end with an invitation to visit a website for even more disclaiming don’t look so silly. Fear not, Tidemarks will continue to say what it thinks. After all it’s priced right and you don’t have to read it. How’s that for a disclaimer?
With sell-out soccer match taking place simultaneously at the Moses basket next door and the first real test of the booze ban it is going to be rather tense at Kings Park when the Sharks host the Bulls tomorrow. Allegedly there is an arithmetic possibility that the Sharks could win the Super 15 this year. However it is much more likely that they will rain heavily on the Bulls parade. Sports Minister Mbalula will not be watching. He is far too busy planning how to spend R65m of taxpayer’s money on the next South African Sports Awards event. He has warned oppositions MPs that they will need “good suits and proper shoes” if they hope to attend.
Foolishly I sent the yacht in to have its bottom scraped this week, completely forgetting that it is the Monaco GP weekend. Ah well I shall just have to watch on TV like everyone else. I doubt there were any berths left alongside the Swimming Pool Straight anyway.
James Greener
24th May 2013

Friday 17 May 2013

DID YOU GOT A LICENCE?



One of the stellar large capitalisation performers in the market has been SAB Miller. A single share these days will cost you more than R510 which is R110 up on its price at the start of the year. That’s a gain of almost 30%. In a trading update, published a month ago, the company suggested that its forthcoming results (now due next week) would show only single figure (i.e. less than 10%) growth. The average forecast by the analysts who do this sort of thing, is that annual earnings will be around R20 per share and the annual dividend will be close to R8.70 a share. On these numbers, the price to earnings ratio of SAB Miller is almost 26 and it offers a (pre-tax) dividend yield of only 1.7%. In my book, that’s very very rich. But despite this data, day after day, for several months, buyers have been happy to pay more and more in order to own shares in this company. Undeniably it is a great company with a great product and with great management (the recently retired CEO and I shared a school desk for 4 years) but it is impossible to justify buying them at these levels unless you plan to sell them and reap a capital profit. But beware the day when more profit takers than buyers call their broker.
Wouldn’t it be fun to watch the communist-infested Cabinet reach the conclusion that they need to sell off state assets. When it comes to raising money, ideology takes a back seat. Left-wing politicians are going to have to wrestle with their ideals when they decide how much of which assets they are prepared to sell to the dreaded capitalists. They will find few takers if they choose to “do a Telkom” and retain control and the right to appoint management. From where I sit, with a view of the many ships waiting to enter Durban harbour, the ports are clearly a candidate for privatisation as indeed should be the state owned airline and airports. Doubtless there are others and developments will be interesting and maybe even tempting. But don’t hold your breath. The pictures of Marx, Lenin and Castro are still hanging in the Cabinet room.
Also in the vein of scratching for cash is the looming deadline for anyone who tries to earn a crust by helping other people with the ridiculously difficult task of completing a tax return. Within a few weeks these advisors must not only be registered with the taxman but also be a member a professional accounting body. It is totally unclear what risk the government is attempting to cover with this new law. Presumably they are worried that physicists like me might find a worm-hole in the space-time continuum where we can hide our income.
This old bear’s lack of a financial education continues to hinder his progress in understanding matters such as the need to “recapitalise” the National Empowerment Fund. Despite assurances that it is a going concern and has reserves it appears to have run out of money. Apparently this is not the same as “broke”. An entertaining squabble between itself and the National Treasury has broken out and in the meantime the outfits to which it makes “disbursements” are left waiting for their money. Are they required to pay it back ever? How does this all work? Who will recapitalise me?
Here in the kingdom, the head that wears the crown surprised his subjects, especially those in need of healthcare, by raising the priority of renaming the hospitals above that of getting them actually to provide medical services. It is unclear why naming health department facilities after his ancestors is a necessary step for attracting suitably qualified and dedicated staff. Assuredly the sick people have no interest in what the place is called as long as it’s open and they can find it. Puzzlingly, however, the boss of the provincial health department supports the program but did add that “we are focussing on changing the names of the mortuaries first.” It’s really not encouraging to think that these sorts of items fill the agendas of those whom we elect.
The Sharks at last have broken the run of ignominious losses which various uncharitable fellows at the bowling club had begun to attribute to my support for the team. I trust I will be able to drink there unmolested tonight.
James Greener
World Information Society Day 2013.


Friday 10 May 2013

COMPETITIVE DISADVANTAGE



The bull is very alive and supremely fit. Anyone still plotting share prices by hand on graph paper will have been busy with the scissors and sticky tape tacking extensions on the top of their pages to accommodate the latest points. The US share market surge has been exceptionally steep as investors become convinced that growth is gaining traction in that land. Closer to home the yields on local bonds have plunged to levels seen before only by much older people. Lending money for 10 years to the South African government at less than 7% displays considerable optimism I think. The All Share Index is also very perky and attempting to test the March highs around 41 000. Fascinating stuff. 
Reporting season for February year-end companies is hotting up. The impression is that quite a few of them are finding business is rather tough and not everyone is boasting of double digit earnings increases. One bank scared the market quite badly with the news that it is becoming harder to get people without jobs and money to repay their loans. Hence, they warned, the bank was not being as profitable as everyone was hoping. Some of us were unsurprised by these revelations.
I wonder if the JSE is satisfied that all shareholders are getting equal access to company results now that companies are no longer compelled to publish them in a newspaper. While it is true (perhaps) that the dreadful Stock Exchange News Service (SENS) offers simultaneous and equal access to everyone, those people who actually want to use and study the data are now far worse off.  Anyone who disagrees ought to be forced to compile a report on a company using only the results as they appear in that utterly dreadful SENS format. It’s about time that the JSE outsourced that service to someone who understands style, layout and format.
Cape Town has been hosting one of those World Economic Forum shindigs. Those are events when people who have loads of theoretical experience dish out advice about how we ought to be running our lives, businesses and countries. Such a large gathering of busybodies and analysts is hard to beat for creating wonderfully rich and thick seams of foolishness for old cynics like me to mine. Despite the revelation that the austerity measures now being forced on the Greeks and others arose from an error-filled spreadsheet model of how economies are supposed to work, the nannycrats have not skipped a beat. The buzzword of the moment is no longer “sustainable”. Apparently we should now all strive for “competitiveness”. Those of us who actually have clients and customers who will take their business to someone else in a heartbeat if we cease to be competitive are bemused by this instruction.
The African Development Bank has reportedly spotted a “pool of surplus funds  ... globally” that they believe they can tempt into investing in a USD 50 billion bond. The money would be used for infrastructure financing. That’s a whole heap of money, but it could be a great deal less if municipalities and councils began collecting the billions they are owed by people using the existing infrastructure. It’s odd that many of those who owe that money will complain bitterly if their pension fund was to invest in this bond and it failed to perform.
It is probably mathematically let alone physically impossible for the Sharks to reach the Super 15 playoffs. Their only hope would be if Australia quietly slipped under the sea one night but that would probably cause more excitement than simply promotion for a few underperforming South African rugby teams. It’s so nice that the Formula 1 season has returned to the old European tracks for a while. Those long and carefully designed circuits seem a little soulless.
James Greener
New Moon May 2013

Friday 3 May 2013

TOUCHY TOUCHDOWN



I am not sure what all the fuss is about. It’s not as if our own air force is making much use of Waterkloof Airbase these days. The arrival of a foreign wide-bodied civilian passenger plane loaded with wedding guests at the military base must have provided a welcome distraction for the folk who hang about this National Key Point all day. Except for those planes that are used to ferry cabinet ministers to junkets, the rest of our air force is reportedly mostly in mothballs awaiting pilots and fuel allowance.  Reportedly this breach in security and absence of customs controls was unconnected with President JZ’s close friendship with the family holding the wedding. The scampering for the exits by officials who claim that they were not involved in the incident is very amusing. Nevertheless, we must all hope that the bride did enjoy the dream wedding that her father organised for her. Hopefully she will not be disappointed to learn that the blue light convoy between Waterkloof and Sun City might have been escorted by impostors posing as policemen. Presumably they ignored all traffic rules like proper police anyway.
The European Central bank has decided that the economies of the region are all in the doldrums because the price of money is too high. Accordingly it lopped a third off that price and will now charge its clients just 0.5%pa. The immediate effect of this was that the euro currency declined in value a bit against other currencies. It will take far longer to reveal whether the rate cut will trigger a renaissance of business and consumer confidence and activity. Personally I don’t think the price of money is the biggest problem. I believe the increasing transfer of risk-taking and decision-making to governments is dampening personal enterprise and enthusiasm both in Europe and in many other places. The recent obituaries and memories of the late Baroness Margaret Thatcher offered a reminder of how the dead hand of bureaucracy needs to be removed in order to allow growth to happen.
Much has been said about the report that at least R1bn of public money is stolen each year. This is indeed disgraceful and the real crime is that the thieves are rarely sought and almost never properly disciplined. The bright side, however, is that unlike other corrupt regimes the majority of the cash seems to remain in the country and not disappear into bank accounts in Lichtenstein and Switzerland. Our thieves it seems are happy to spend the money locally and that must surly be a factor in explaining the rather rude and robust health of all types of consumer consumption statistics. Car sales are up, most stores are reporting growth and even private schooling demand is strong. Data on the sales of premium brands of single malts is not easily found but it probably shows that whisky drinkers are not in danger of dying of thirst. Let’s remind ourselves also that R1bn is just a tenth of a percent of the state’s budget or around R1 trillion. The real waste is actually to be found in the regiments of unproductive and incompetent civil servants drawing a salary.
Whenever tax collectors world-wide gather for their annual conferences they must set aside a special time for a minute of silence and contemplation in grateful thanks for the scientists who came up with the thesis that carbon dioxide is bad for us. Here is a commodity that is ubiquitous and universal and produced by everyone in huge quantities but apparently really ought to be controlled. And what better way to control it than by taxing it. Most of us are pretty hazy on what the stuff actually is; after all it is colourless, odourless and pretty much weightless. We have no way to challenge the models and equations that confidently state how much harm we are causing by going about our daily lives. This week a local tax official even suggested that carbon dioxide could be responsible for delaying the government’s poverty reduction plans. There is no limit to the idiocy that a state in desperate need of money will display.
The Sharks (and the Stormers) are in the Antipodes. That means that their matches are being played when it is still breakfast time here. It is difficult to be excited about rugby without a Castle in the hand. I stopped having Castle for breakfast a few years ago. Pity.
James Greener
World Press Freedom Day 2013