THE SKY IS FALLING

Once again that strange architectural structure called the debt ceiling has appeared in the corridors of power in the USA. Supposedly it sets an upper limit to how much money the government can borrow in order to cover the shortfall between its prodigious spending activity and the less than expected tax receipts. Inevitably of course there is scant political will  to cut spending or raise taxes and so the debt increases and the ceiling gets closer and requires remodelling. This performance of “raising of the debt ceiling” has taken on a near ritualistic nature. Opposing politicians debate and haggle and blame and skirmish right down to the last moments before they take the inevitable decision to borrow “just a wee bit more to tide us over ‘til pay day”. The nation heaves a sigh of relief and nothing changes. The ceiling is way up there out of sight. Until it isn’t.

Those of us who were brought up on the saying “neither a borrower nor a lender be” might wonder why anyone still feels inclined to lend to this nation which is the greatest debtor on the planet. The simple answer is that so far absolutely no nation has the courage or actually the need to call America’s bluff just as long as the US dollar is worth something. Despite being created and distributed by the Federal Reserve through its quaintly named “Quantitative Easing” program at a blistering pace the dollar remains most the world’s preferred currency for international trading and benchmarking.

The pe ratio of the JSE’s Financial and Industrial index (that is, it leaves out those pesky hard-to-understand mining shares) has been loitering around the 18 level for the last six months and it is starting to feel “normal”. However valuations as rich as this are infrequent and historically are not times to buy. A plausible suggestion is that equity markets in general have been the destination of some of the money created by that QE program in the US and that is why panic ensues whenever there is any suggestion that it might be terminated or tapered. The puzzling part of that theory for the JSE is that for any of those dollars to come here they would need first to be converted to rands. But the ZAR has been one of the globe’s weakest currencies this year.

That tax-payer funded outfit, the National Empowerment Fund, that lends money to folk with a good business idea and even better family contacts, seems surprised with having to announce that it will have to write off R290m in non-performing loans. And over at the National Youth Development Agency they cheerfully admit that they have lent R212m to youths who also are not likely to repay any of it. Here are some ideas. Leave the lending of money to the commercial banks who, after all, are quite good at it. Close down all these tax-payer funded entities who give away cash, thereby saving huge sums of money which can be left in the community by reducing the VAT rate or something.

The collective noun for nuclear power stations is a fleet. This emerges from the report of the announcement of this nation’s most expensive investment program. Some bright spark at the department of energy must have had to search a bit to find that word when preparing the minister’s speech announcing that SA is going to build a bunch of these things. Rather clever really.

Sadly South Africa was not one of the 170 countries able to watch the Americas Cup yacht racing live from Los Angeles on TV. The spectacle of sailing boats (?) going at 80 kph in winds of less than half that speed is awe inspiring, No wonder the crews wear crash helmets. Do the Kiwi team do the haka before each race? It will, I suppose, be some time before SA again finds the time and money to mount a challenge for this trophy.

James Greener

Golden Lions vs Sharks at Ellis Park Day

GENTLEMEN and ladies LIGHT YOUR FIRES

 It probably didn't have anything to do with it being full moon but on the same day the committees of experts both here and in the USA both reached the conclusion their current policies were just exactly right for restoring economic growth in their respective countries. Here on the southern tip the banks can continue to borrow money from the Reserve Bank at 5% and lend it to us much higher up. And in the US, the Federal Reserve will not tamper with its program of injecting huge sums of money into the system. This postponement of the dreaded “taper” utterly delighted investors almost all over the world and share prices soared mightily. The JSE All Share is in new territory above the 44 000 mark. Allegedly, USA investors, now freed from concerns about rising interest rates at home, can return to shopping for higher yields in emerging markets like ours. Those of us worried about all this liquidity one day showing up as inflation are a discredited minority.

Only the wilfully deluded could claim that the government’s attempt to deny market forces by imposing a program of political allocation of resources has achieved its objectives.  No matter how sympathetic and well intentioned the often hideously complex deals and schemes might be, many of them seem to collapse simply because value is lost rather than gained through the deal. Sometimes in order to satisfy all parties a company may resort to an action which looks rather suspect when not seen through the lens of “transformation”. Goldfields, a company that is also listed in New York has been asked by that market’s regulator why a transfer of a parcel of shares to a politically influential individual should not be called a bribe. This may end badly.

As did the recent trip made by Khulubuse Zuma (the president’s nephew) to what he called darkest Africa. Clearly hoping to dupe ignorant tribesman up there, Khulubuse jetted in with a plane load of money and returned with a cargo of what he had been assured by the Central Bank of Guinea were bars of pure gold. Unfortunately the bars later turned out to be copper and zinc.  Interestingly, despite his intimidating bulk and impeccable contacts, Mr Zuma has not returned to seek compensation and reportedly has written the venture off as the price of doing business in Africa. Well, yes, sadly.

Another story from darkest Africa concerns the construction of an airport in Somerset East. When I last saw that dorpie it barely ran to two filling stations and tarred main street. Things must have blossomed there, though it hasn't yet been revealed just which airline will offer a service into this tourist magnet. Now the sunsets are magnificent, rain is infrequent and a flock of sheep clustered around the trough at the foot of the windmill is an iconic sight which is never forgotten, but beyond that, this is all rather puzzling. Perhaps someone’s uncle needed a contract.

Apparently the section on tackling was omitted from the French translation of the Laws of Rugby. So that clears up that issue. More importantly, however, the provincial department of sport and recreation is calling for nominations to honour sporting champions here in KZN. As an indicator of how a bureaucrat’s mind works, the 16 categories include the province’s best administrator, best federation and best recreation body. Nominations in a Posthumous Category are also expected.

Remember that in effect this is a long weekend with many of us seamlessly sliding Monday into Tuesday’s public holiday in celebration of the braaivleis.

James Greener

Vernal equinox (nearly) 2013

MIDAS TOUCH

A much respected colleague once pointed out that it was so much more fun being a bull and being able just to buy at anytime without too many concerns. Bears on the other hand have very few occasions when they feel that prices have plunged far enough to warrant buying and even then they still fret that things ought really to go a little lower. Here we are, just half way into the month, and already the All Share is nearly 5% up and setting new highs. Bond yields are down and the bears there are being thrashed. We have these concerns about Russia outmanoeuvring the US over Syria, consumers piling up debts, strikes in support of huge wage increases and shares prices at more than 20 year’s worth of earnings. We can’t bring ourselves to buy and yet tomorrow everything is more expensive. It’s not easy.

What is easy, however, is to write a speech for Public Enterprises minister Gigaba that explains yet another turnaround strategy (the ninth in probably as many years?) for SAA. Simply empty the cliché phrase book into the word processor and off you go with sweating assets, complex legal processes,  optimised operational efficiencies, turnaround strategy custodians, growing revenues and of course all of this in the face of the headwinds which are out there. The Minister should have tossed that back to the scribes in embarrassment. The sole thing he didn’t say was how much the taxpayers are in for this year. It is truly time for the government to sell this asset whether sweaty or not. But would the new owner remember to reserve the front seats in business class for VIPs?

Yet another state owned entity was all over the news celebrating 20 years of operating what might be the most expensive airports in the world. Among the fawning advertisements placed by grateful suppliers there was one missing. That should have been from the association of luggage handlers and looters. With two decades of experience ACSA have not yet been able to introduce a system that eliminates the opportunities for the thieves and crooks that work on their premises to open and steal from passenger’s luggage. Astonishing.  Mind you, ACSA are to the thanked for their sponsorship of those brave people who play wheelchair tennis. In particular Lucas Sithole who last weekend won the US Open, wheelchair quad division. What an achievement by this really severely disabled young man

There’s a local government official in Gauteng who is so delighted with her own record and abilities that she claims to be able to turn any post she is given into gold. Exactly what this means is a tad unclear and it may even refer to her ability to extract large sums of money from the public purse. Allegedly this extravagant claim is deliberately targeted at catching the eye of president Zuma when he next has a national cabinet post to fill. Goodness knows there are already plenty of ministers who are already hard at work lining their pockets with gold while turning their posts into dross.

 Just to remind investors that there are securities listed on the JSE that enable an investor to buy what in effect is the value of various market indices. Not just South African indices like the Top 40 or the Resources 20 but also the US, UK, Japanese and European market overall indices. These last are converted to and priced in rands so one gets the double exposure (not always welcome) to a combination of a market move and a currency shift. For some reason the USA one has been particularly popular recently. Buyers are hoping for a simultaneous stronger rand and an improving US share market.

Next week hopefully we can open Tidemarks with the sports section. Today we can do no more than panic and trust that Heyneke Meyer and the lads do the business against the All Blacks tomorrow morning.

James Greener

Friday the Thirteenth

While I am slowly extracting myself from the sharp end of the stock broking business, my fascination about how hard it is consistently to buy cheap and sell expensive will keep me reading and writing for a long time still. “Tidemarks” is a more or less weekly result of that self-indulgence.

Quiet neat really. If the voters are complaining that they can't borrow any money because the records show that they didn't pay back the last amount they borrowed simply tell the banks to erase the records. Happy voters. The numbers here are alarming. 9.5 m consumers currently are having problems with their debts but 1.6 m would be eligible for having. Heir records erased.

At an average price of Rr355 a liter (R.   266 aA bottle) its little wonder mthat the recent Nederburg auction was deemed a success

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It  is notable that the taxman cheerfully accepts that the revenue legislation in t his country is fiendishly complex by insisting that anyone offering tax advice services must belong to a recognized professional  body. Why not just simplify the tax codes so that taxpayers can easily do their own?

SURELY WE ARE IMPORTANT

Just hang on a minute. Can this be real? The BRICS have set up a $100bn currency stabilisation fund (i.e. a buyer of last resort) and little old us have pledged $5bn towards it. Leaving aside the near hopelessness of  trying to take on global currency markets, what is going to be  the local public reaction when this news becomes more widely known? How long will it be before that amount gets expressed in numbers of houses for the homeless, school books for the unlearned or even fuel for the air force?  What actual benefits excepting foreign travel opportunities for politicians do we receive from pretending that we can play in this league? Rather tellingly the Economist newspaper’s recent articles about the BRICS never even mentioned us as members.

Similarly the news that President Zuma jetted off to Russia for the G20 meeting promising that he was going to tell them to do something about emerging market currency volatility is a tad embarrassing. Despite his undoubted bulk and presence I doubt anyone there is going to pay much attention. Much more concerning for delegates there, is the division of the globe into two camps on the topic of whether to do anything about Syria and if so, what. The woes of the rand are trivial compared to that.

Because the last one was asked quietly to leave, the nation is now seeking a new commissioner for the South African Revenue Service. Interestingly the job advertisement nowhere mentions explicitly that experience and qualification in tax, accounting or finance would be useful. Competence in leveraging diversity is required. Whatever does that mean? An interesting aside to emerge from the land ownership audit is that it is not possible to provide a breakdown of ownership by race because the home affairs data base no longer carries such a classification. So how then is it possible to calculate BEE scores and all the other insulting racist categorisations we voted to remove 20 years ago?

One of the few certainties of SA is that wherever you go it is possible to find a Castle lager, usually chilled to perfection. And yet the bureaucrats over at the competition commission are still convinced that there is something not right with SAB’s distribution system and want to dismantle it. In fact rather than condemn it perhaps they should be employing its undoubted strengths and efficiencies to distribute school books, social grants and other government services that government officials seem unable to organise.

It’s always fun when market prices set a new high. This week saw a 100million euro fee paid to transfer a soccer player named Gareth Bale from one club to another. A good chunk of that fee should quickly be recovered by his new club selling replicas of his numbered team shirt to fans. It is reported that the fellow himself will be paid in the region of R400 a second whether he is on the field hoofing a ball, asleep in bed or hoisting a pint down at the pub. This contrasts starkly with the report about a league for young children in Ontario which, in the interest of safety, now plays “ball less” soccer. The kids need to imagine where the ball might be and race after it. Seriously?

I do hope the ‘bokke in Brisbane tomorrow know exactly where the ball is at all times by hanging on to it and carrying it over the try line several times. Despite on paper having a really good side and a bench packed with superb replacements this trip down under is still very worrying.

James Greener

6^th September 2013