Friday 31 January 2014

CHICKENS SEEKING ROOSTS



Well now something has undeniably changed. The repo rate has been lifted by 50 basis points by the wise men and women who met at the Reserve Bank earlier this week. Unfortunately for them but unsurprisingly for the rest of us omniscient beings, this move so far has had the exact opposite desired effect on the markets. The bond market has swooned, share prices have slipped and the rand has barely paused in its slide into invisibility. The level of 20 to the British pound is not far off.
As suggested before, this rather tentative official interest rate increase, while welcome for those of us who are savers, is way too small to hide the damage being done by the political rhetoric and posturing ahead of this year’s general election. Foreign and local players will continue to sell rands and buy other currencies so as to avoid the large doses of stupid that our leaders seem to be taking.
Talking of which, why is the election date not being announced? Is the ruling party so appalled at the way in which events are unfolding and potentially eroding their support base that it is nervous about setting a date? Do they first need to think up and hold some sort of block-busting vote-catcher pyrotechnic display of threats and promises?  
Certainly their selection of a highly dodgy, killer-bomb detonating ex-terrorist to head the Independent Police Investigative Directorate is setting off alarm flares among the more sensible folk of this land. As is the selection of many convicted criminals for the party lists which totally explodes the claim of having no tolerance for corruption. Connoisseurs of irony have so many examples to choose from here on the southern tip.
In the US the Federal Reserve has turned down the volume on the money hose another small notch and merely the news of this move has caused all kinds of people to catch a dose of the vapours. For those of us who firmly believe that most official interventions in markets are unwarranted and ultimately damaging, this behaviour is the finest sort of supporting evidence for our views. Way back in 2008 banks were lending ridiculous sums to obvious deadbeats because they knew they could parcel up and sell those loans to naïve and unsuspecting investors. By the time the borrowers defaulted, the banks were far away. Instead of forcing the banks to unwind their messes and if necessary go bust, the politicians doled out taxpayers money to paper over the cracks. But now, once again, the poultry is looking for somewhere to settle down. Only when it is clear that governments will no longer try to protect most voters from the consequences of their own decisions can the markets perhaps return to historically sensible valuations.
Company results season has come around again and this time there are indications that there are not as many free spending shoppers as we have become used too. Tones of caution and warning are in the air. Some companies are reducing staff numbers and selling off unprofitable divisions. Maybe this time the market has really peaked?
If it wasn’t for the news that Rear Admiral Samuel Hlongwe has been named as chief of the navy we would probably have never learned that Azerbaijan also has a navy. It is reported that the admiral received naval navigation training in Azerbaijan. Since that country is land-locked presumably the practical lessons took place out on the Caspian Sea where conditions are likely quite different from the Cape of Storms. The admiral must be delighted that he now has only a desk in Pretoria to steer.
Even if the Proteas are the best test cricket team in the world most of us find a reason not to go to the stadium and watch them. And so those empty seats have provided our foes with the excuse they need to relegate us and just about every other country to a test B division. Our sole rejoinder to this insult is to give the Aussies a hiding when they deign to pitch up here next month. Unfortunately that is unlikely to change any minds in the lofty heights of world cricket administrators but it will still be very satisfying.
James Greener
31st January 2014

Friday 24 January 2014

BUNNY EARS ARE BACK



The exchange rate is not a simple thing to grasp. For a start we are being told the rand is disastrously and rapidly weakening and yet the numbers being paraded on the TV and in newspapers are getting steadily larger. This week there was a great deal of fuss when the number 11 appeared. This was because it now takes more than 11 of our runts to purchase a solitary greenback. Actually buying or needing forex is not a common experience for most South Africans. Even in Cape Town – which everyone says is like a different country -- the people use the same money, so what’s the fuss?  The main difficulties with our cash is that we never seem to have enough of it, and the new Mandela series bank notes seem to wear out and get dirty quite quickly.
Sadly of course the effects of needing more and more rands to buy one measly US dollar will soon enough get felt in everyone’s pocket. Most stuff – critically fuel – is priced in dollars. In fact our currency has weakened more against the pound sterling in the last few weeks than against the USD. Fortunately, except for holidays, not very much we buy is priced in pounds. With the notable exception of Scotch Whisky!
Some analysts are warning that the forthcoming inflation will prompt the Reserve Bank to tug on the “Increase Interest Rates” lever. But just adding 50 basis points or so to the return on a bank deposit will not dispel the growing perception that security of ownership of assets is declining. People are once again displaying a preference for assets held offshore where there is less opportunity for the government to suggest redistribution strategies.
Here in KZN the old vehicle number plating system that quaintly revealed in which city the vehicle is registered has survived up until now. But this year, car owners must change over to the provincial system in use elsewhere in the country. The reasons offered for this inevitably costly change, range from the asinine (too colonial) to the obviously illogical (better control). The real reason is bound to be related to a relative who has won the rights to be the sole supplier of the new and expensive number plates. As an incentive for us to welcome the change, the new plates will carry a picture appropriate to our province. What will that be? Sunset at Nkandla? Dusi Canoe Carriers? South Beach on New Years Day? Cable way in the ‘berg? Leopard skin ensembles?
This week it was discovered that the sculptors of the somewhat overly imposing bronze statue of Nelson Mandela just unveiled in Pretoria had secretly embellished the icon. After being denied the convention of signing their work, the artists crafted a very small and all but hidden model of a rabbit in the great man’s right ear. How this delightful addition was discovered is unknown but officialdom has ordered that it be removed .The artists claim it is their trademark. This fuss is somewhat reminiscent of the brouhaha about “the rabbit in the thorn tree” several decades ago when FNB was forced to alter its logo after someone alleged that the bunny allegedly lurking in the silhouette of a flat-crown thorn tree was an ANC symbol. One would like to think that Madiba himself is quite pleased with his companion.
It really is high time the government closed the Department of Sport. After a particularly poor showing the national soccer team was blasted by the minister who realised there was now no chance of a photo op of him hoisting the CHAN trophy in time for the elections. Sport is solely the preserve of those keen and fit enough to play, those clever enough to advise from the stands or the couch and those generous enough to sponsor our efforts. There is absolutely no need for politicians to be involved except as players or fans. And this is true worldwide. Watch developments at Sochi.
James Greener
Friday 24th January 2014

Friday 17 January 2014

WHO WILL BUY OUR RAND?



Our poor little currency is really getting clobbered. Fortunately no one in charge has suggested that the Reserve Bank ought to be in there defending it. If they tried the speculators would whistle through the nation’s foreign currency reserves in a heart beat. Equally no one has yet dared to admit that perhaps foreigners and locals alike are disappointed with latest examples of a clueless leadership and the seemingly officially sanctioned waves of corruption and theft of public money. Every South African can tell a story of crime, corruption or incompetence more horrifying and disgusting than their neighbour. Attempts by the few straight law enforcement people to bring cases to court invariably collapse when it turns out that the evidence has disappeared or some other equally shocking excuse. Our democracy is moving inexorably towards the historically inevitable next stage which is dictatorship.
The files and dockets of evidence on the Libor fixing scandal in London have, however, not mysteriously gone astray. The people who are suspected of playing a part in this scheme are being meticulously hunted down. One website even offers a nifty dynamic graphic that displays the links between the various participants. Most non-market people will have little appreciation for just what a big deal it was that this nearly sacred benchmark interest rate was being manipulated on a regular basis. This was a very significant fraud being perpetrated against just about everyone who had money in a bank account. The size of the penalties issued so far and the alacrity with which payment has been made makes many of us very suspicious that the full story has not yet emerged. On second thoughts, perhaps there is a great deal of information which has somehow got lost.
The incident has also highlighted the quality and integrity of the data produced by and for the financial and economics industries. From such all-important block busters like a nation’s GDP and inflation rate and government deficit down to small but specific reports like the outcome of a mineral exploration or a due diligence test of a corporate, the degree of uncertainty is itself very uncertain. With that voracious maw of the internet demanding to be fed immediately and unceasingly the incidence of genuine mistakes is also increased and that helps to disguise the fakes and the deliberately misleading numbers
 Oddly enough however, the rand dollar foreign exchange market is probably sufficiently liquid and transparent for the rates at the time of a deal to be real and representative. This indicates that the sustained selling of the rand is also real and not a consequence of some short- term badly handled orders. The message is that people really don’t like our money.
Yet again my invitation to attend the annual talking shop in snowy Davos has failed to arrive. The great and good in the worlds of governance and economics will just have to manage without being asked difficult questions like where is the global recovery. And anyway I have a much better invitation to go and look at birds in St Lucia.
Skipping through the sports channels the sight of international soccer being played in a nearly empty stadium caught my eye. It turns out that this is a part of Chan, a tournament with a silly name being held right here in SA. Non-existent publicity coupled with a very poor choice of season has prevented Bafana from attracting home ground support. Some one will win but I doubt it will be us.
James Greener
Friday 17th January 2014

Friday 10 January 2014

A WOBBLY START BUT MANY MAY NOT HAVE NOTICED



Some people have obviously made a new years resolution to get as far away from the South African rand as possible. It is being slaughtered and has lost almost 4% against the US dollar and 2% against the pound sterling. The JSE index has also not started the year well, which indicates that some of the sellers of rands are also sellers of shares. Our self-awarded perception of being somehow special is being trashed and handed back to us on a plate. Unfortunately the electioneering has got off to an early and savage start and the words coming from the mouths of most politicians are doing nothing to suggest that we are anything other than very ordinary.
Our president boasts that he used to practice witchcraft against a large and loyal segment of taxpayers. The minister of transport’s reaction to the shocking death toll on the roads this holiday is to appoint a commission instead of firing every traffic cop. The minister of higher education dismisses the idea of a pass mark for exams and so insults and denigrates the amazing efforts of those pupils who did achieve the incredibly poorly named bachelors pass. Another official reveals the truth about the education system by suggesting that employers need to spend a year teaching people stuff they never learned at school. Like reading and writing. Some universities reportedly already have to do this.
 There has been widespread disregard for finance minister Gordhan’s request that officials curb their lavish spending habits. Luxury wheels are still being ordered with the excuse that The Ministerial Handbook allows it. The rewrite of this pernicious and wholly unnecessary pamphlet has long been promised, but obviously there is little incentive to do that quickly.
In fact that handbook should be replaced entirely with a simple letter to all politicians and bureaucrats which says: “Congratulations on your appointment to this post. Please remember at all times that you are a civil servant, employed by the citizens of South Africa who pay your salary which includes all the allowances provided for in law. Your employer is NOT responsible for any further expenditure on your behalf including but not limited to personal accommodation, transport, food, credit card bills, medical aid and provision for your retirement. Like your fellow citizens you must meet those costs from your own salary. Naturally as a taxpayer you may submit claims for all the permitted deductions when filing your tax return. Remember to retain proof of all expenditures to support these claims. Visits to the SARS offices must be in your own time. Should you feel that your salary is insufficient remuneration for your skills and efforts you are urged to resign and move to the private sector where, according to your unions, the pay is far better. Thank you for serving the people of South Africa.”
Apparently research reveals that the majority view amongst financial analysts in the US is that the economic recovery is starting to happen. Inevitably there are some bears whimpering that they don’t see it that way. Regular readers will be unsurprised to learn that I side with those bears. Globally the amount of debt which looks as if it can never be repaid continues to be a real, if very unfashionable, concern. There’s another one of those unseemly squabbles about the US debt ceiling coming up and that might unsettle investors.
And in this vein it will be interesting to watch SANRAL, the beleaguered e-toll route operator when it comes back to borrow in the bond market. Will it be able to show healthy cash flows capable of servicing the loans or is their system unable to collect from the many disgruntled road users?
The Australian cricketers arrive here in a month. They seem unusually chipper and confident that the Proteas are “ripe for the picking”. Certainly we have made it easier for them by not scheduling any matches at the Wanderers bull ring – another mistake by the suits that run our sports these days. Maybe we will need Jacob Zuma’s spells after all.
James Greener
Friday 10th January 2014

Friday 3 January 2014

IT’S NOT ALL THAT COMPLICATED



So what, really, is going on?
Well it seems that most of the world’s central banks – led by the Federal Reserve in the US-- have decided that it is their duty to ensure that no one, however reckless or stupid should be obliged to face the reality that many investments go bad. Very roughly speaking the rather mysterious previous role of the central banks was to be the lender of last resort to the banks  and then to keep a beady eye on how and to whom they in turn lent that money. Inevitably, however, from time to time a bank will get into difficulties by, for example, lending money to someone who forgets to pay it back or allowing the whizz kids in the trading room to sell cheap and buy expensive instead of the other way around.
When word of these problems get out, a queue of depositors, clamouring to withdraw their cash, appears at the front door of the bank. Politicians get uneasy when they see unhappy voters who these days have been led to expect that any mishap that befalls them is not their fault and that the government must protect them. Taxpayer’s money is then hastily distributed to ensure that all affected parties are comforted and that no one pays too much for their mistakes. This activity is termed a bail-out, a phrase frequently applied to keeping leaky boats afloat.
Unsurprisingly the cash collected from current taxpayers is limited and quickly runs out. So the politicians then instruct the treasury to borrow the necessary funds and so pass the consequence of their bad decisions on to taxpayers yet to be born. However, many of the usual lenders to government have been watching this development with alarm and don’t share the politician’s determination to prevent the natural processes of capitalism to cleanse the system of failed and foolish ventures. Normally a lender’s reluctance can be overcome by offering them higher interest rates on the loan, but remember that it has been decided that the price of money must be kept low, even by force if necessary, so that people can afford to borrow (which is where this all started – I know!).
Now the central banks return to the story. They have the rather nifty ability to create money with a simple dab at a keyboard. In a substantial departure from previous practice and policies, central banks in several significant western economies became buyers of government bonds in very large amounts. This provided those governments with the money to live far beyond their means.  The economic model that justifies this is founded on the belief that eventually all this cash sloshing about will eventually fuel surges in consumption, production, wealth and taxes. The latter will then be channelled into repayment of the loans and the globe will spin happily on its usual axis once more. May that be so and may it happen soon. Sadly so far there are only tiny hints that any of this is happening.. In the meantime and in preparation for that expected recovery, investors are paying ever higher prices for shares that others bought earlier much more cheaply.
Some of us are pretty uneasy about the glibness and neatness of this scenario but can yet offer no better alternative. We have plenty of time to think though, now that the Indians refused to play a third test. The Test program is a mess. It’s time the task of planning was returned to some old buffer at Lords in an Egg and Tomato striped jacket and tie.. The present lot of slick operators are too busy fiddling with the air conditioner buttons and checking that the bookies are on speed dial to get the program right.
James Greener
3rd January 2014