Friday 27 June 2014

ADJUDGED OUT



A brief gust of woe and dismay blew through the JSE when instead of surging to and through 52 000 the All Share backed off and actually fell for a few consecutive days. The panic however has melted and confidence in the certainty that share prices must rise eternally was restored. In the currency market, however, sellers of the rand continue to dominate. Both wise and dumb money is leaving.
The worlds of finance and investing are infested with jargon and structures designed to intimidate and belittle outsiders. A classic example appeared this week with the news that the state is considering how best to “recapitalise” Eskom. The monopoly power utility wishes “to be reimbursed for operational losses resulting from the difference between what it was allowed to charge for electricity and what it spent on producing the power”.  Translated. this means: “We are so bad at running this business that we spent way more money than we earned and now we need some more. Please make the customary large transfer of tax payer’s money and fax us the proof of payment immediately”.
Meanwhile, in Australia, the dismal truth about the alleged skill of actuaries and fund managers has been uncovered. This is that most of us need to keep on working and saving for our retirement for far longer that the sunny assumptions of the experts have been suggesting. We are living longer and getting a far poorer return on our savings than either of those professionals predicted. The sole remedy (aside from getting our offspring and their friends to support us) is to work for longer, and retirement age in Aussie is being moved out to 70!  Now this really is an inconvenient truth which is certainly not yet accepted in Europe for example.
The government ramped up its level of disdain and contempt of the citizens of the nation several notches this week. Amongst its most spell-binding acts of crass stupidity was the election of Julius Malema to membership of the Judicial Services Commission – the body whose function is to select fit and proper persons for appointment as judges. Not only is this a huge and distressing message for the legal profession and their tradition of learning and deliberation but it will also satisfactorily irritate the several other opposition MP candidates suited for such a post. It might even distract Malema for a while.
Noticing that the SABC boss man was surfing the “Brides from Venda” pages on the internet and pretty much distracted, the government slipped through another one of its ideological targets and announced that it will be culling considerable swathes of Afrikaans language content from the airwaves. This act deserves a serious response from advertisers as well as viewers especially in the light of the Corporation’s own admission that the programs are popular. In the meantime Miss Lynne Brown our new Public Enterprises Minister (who naturally has scant enterprise experience) is facing calls from SAA for recapitalisation. What else? Instead of simply flogging off the whole sorry mess she has been waffling on about “business-models” and the like. Just killing off all the free flights on SAA for the chosen ones would save plenty of cash.
The general impression is that the government’s policy of agricultural land transfer has been a calamity. But perhaps this impression is simply a result of biased and hostile reporting and indeed the nation’s newest farmers really are working just as hard and productively as their predecessors. However, the fact that the country is now a net food importer is far more significant than Rural Development Minister Gugile Nkwinti’s exciting news that three of the new boys are now millionaires and so are doing really well.
Soccer must be one of the few sports in which 32 reasonably well-matched national sides can be assembled for a tournament. It’s obvious that Bafana would have been way out of their depth in Brazil. And if the state persists in its meddling, pretty soon the ‘bokke and the Proteas will slip from the international rankings too.
James Greener
27th June 2014

Friday 20 June 2014

COME ON SUMMER



At the time of the winter solstice last year the All Share index dipped quite sharply. Since then our planet has gone right around the sun and the index (plus dividends) is almost 40% higher. This is an astonishing performance pretty much unpredicted by anyone – particularly the bears who have been crouched in a corner rocking gently and keening softly. Or are they  English and Spanish football fans? The cause of their (the bears) concern is that this rate of growth is more than double the earnings growth of the non-resource sector companies. A further, but rather more technical issue is that interest rates look to be increasing and theoretically this too ought to dampen value expectations for equities. Unavoidably it will one day come tumbling down but when and how far is utterly unknown. A brand new and really disturbing development that is derailing many historical valuation comparisons is the news that central banks are now participating in the equity markets. When you have players who can create money at will coming to buy shares, bulls can don their party frocks and order more bubbly stuff.
Just what the nation did to deserve another Address about its State is uncertain but it did kick off what is turning out to be one of this country’s most amusing but rather worrying parliamentary sessions. Amusing, because the “establishment” has no idea what to do with the hypocritical but very blunt talking Honourable Julius Malema, leader of the EFF. Worrying because in due course he will probably be bribed to sit quietly and add his votes to the ruling party’s policies. Part of those bribes might be to reopen the nationalisation debate that seems to be a cornerstone of his strategy for the revolution he plans to lead.
The JSE lists 12 platinum mining companies on its boards. They have a current combined market capitalisation of R 276bn. But only 5 of them declared profits in their latest reports. These totalled slightly more than R6bn.  Subtract from this the aggregate R2bn in losses reported by the other 7 and the industry’s net earnings are in the region of R4bn. Dividing this figure into the market cap number suggests that the whole industry (as seen through the eyes of the JSE) is trading at a whopping 67 times earnings. Now on the foolish assumption that any nationalisation program would pay market value for the assets it wanted to seize, and ignoring the fact that through its pension fund and other vehicles the state probably already owns a portion of these shares, it seems to me that as a simple trade, private shareholders should be happy to let Mr Malema have the lot.
The situation on the gold mining board is even clearer. There the aggregate net earnings are a negative R1bn and the 10 listed companies are valued at a mere R151bn in total. Surely if a buyer turns up at these prices, this sector is another clear sell.
Tragically the reality is that labour and its leaders seem to be prepared to negotiate whole industries into collapse. While perhaps they were not wholly responsible for the decline in the gold mines, not even the government seems hopeful that they can be persuaded to reconsider their program at the platinum mines.
The lurid headlines about “calls for chicken duties” were not about looking for people to guard the coop at Nkandla. Once again it is a story about governments meddling in markets and setting prices. Disappointing really.
Disappointing also was the Baby ‘bokke being beaten by one point by England in the Junior Rugby World Cup this morning. It will be interesting to see if the Lowvelders pack the stadium in Nelspruit tomorrow for the next test against Wales. Last week’s game here at Kings Park was hugely entertaining and satisfactory. The real Tests are still to come of course.
James Greener
(Almost) The Winter Solstice 2014

Friday 13 June 2014

THE BEAR EVADES SUPER PROPHETS



This bull market is really still solid and broad based even if it is moving the historic pe ratio on the financial and industrial index up to the knee trembling level of 20. The heavy hitters most responsible for lifting the market to yet new highs this week do tend to be those with assumed rand hedge properties (SAB, Naspers, BAT, Sasol and Aspen) which makes sense as the currency was again under pressure while the self-important ratings agencies huffed and puffed about the country’s ability to repay its loans.
Even if the platinum miners’ strike is coming to an end there are going to be no winners. The foregone revenue and wages will almost never be made up and everyone will go forward with suspicion, resentment and debts. The country is plagued with cynical unfeeling opportunistic leaders who make utterly impossible promises to followers who are totally under equipped to spot that they are bogus. As pointed out by many observers, this is perhaps the country’s biggest tragedy and shortcoming. The sole remedy is a more informed and educated populace but the suspicion that the leaders also strive to prevent that from happening is commonplace
Government is thinking about introducing a tax on mining super-profits. An ominously named Strategic Intervention in the Mining Sector discussion paper has confidently defined a super profit to be a “return on investment” greater than a “normal” level of about 15%. In the opinion of the socialists who clearly authored this paper, any money earned above this rate belongs to the people of the land and not the company or its workers. This idea is deeply objectionable on so many levels and it is impossible to be sure whose investment is being targeted. Even if is doubtful that many folk have enjoyed a double figure return from the mining industry in recent years, it is certain that blizzards of bookkeeping will be employed to minimise this impost. Those people of the land looking forward to a windfall handout may be rather disappointed.
Hlaudi Motsoeneng is obviously finding his new position as head of the national broadcaster very onerous and time consuming. It leaves him with little opportunity to find a wife. But the proud and grateful leaders of his tribe in Limpopo have rallied round and offered him a selection of 10 young women from the province. Hopefully he will find one to make him happy, unlike that pesky lady Public Protector Thuli Madonsela who is complaining that his appointment and remuneration is rather dodgy.
Already this winter has produced some minimum temperatures which amaze even our emigrants in Canada. Predictably Eskom is finding itself unable to meet demand and load-shedding is back in force. Here in our region of the kingdom, we are also faced with a possible water shortage due to theft and vandalism (being escalated to sabotage by the infuriated officials) of a critical part of pipeline. Those of us who prefer cold beer and wine over hot tea and coffee are unaffected.
The first Brazilian player who managed to score a goal in the correct net during the opening World Cup match, was moments before involved in a physical contact incident that  which in rugby would have earned him an instant red card. Perhaps the reason why we oval ball fans find soccer so baffling is the refusal of the incredibly wealthy and arrogant suits who control the wonderful game to use proven technology to identify infringements. Presumably someone is benefiting from letting human “fallibility” influence outcomes. Tomorrow the obviously exhausted ‘bokke will hopefully avoid injury in the match with Wales before the critical tests against the Wallabies and All Blacks. In order to assure a steady flow of TV money organisers agree to a packed calendar and discard wounded veterans in favour of young players eager to earn a national cap. This sport too has become a production line.
James Greener
Friday the 13th.

Friday 6 June 2014

DO AS I SAY. NOT AS I DO




There is really nothing special about 50 000. It’s just a nice round number, easy to remember but now covered in dust as the All Share index raced past it this week. Where this index is going is impossible to say. From the weakness of the rand, however, it seems safe to say that the buying pressure is locally based. Foreigners have seen something that scares them and presently are drifting off elsewhere.
Maybe they too are worried by the increasing anti-market sentiment and regulation that seems to have ratcheted up a notch in our poor and battling country. The truly dreadful problem that the economy is shrinking (but not yet in a recession apparently – thanks to a technical definition) should be ringing very loud alarm bells. Instead the government is stubbornly doing more of what its own experience has shown does not work. That is to impose more and deeper controls on how we should go about our lives. For example the unsympathetic and unyielding application of tightened visa regulations does nothing to encourage talented folk to come and help us but it provides great material with which the internet chatterers to deride us.
Mind you, when it come to interfering, plenty of other places are just as foolish as we are. Yesterday the suits at the European Central Bank announced a negative interest rate. This means that certain deposits made with that bank will be returned with the interest deducted from the principal. The idea is that this will encourage people to spend money rather than to save it. This utterly ignores the fact that obviously many people in Europe have decided that they don’t wish to do that right now.
Back home, however, the worst kept secret is that the Reserve Bank feels that further interest rate hikes are inevitable. For savers this is good news. But the reports from companies which try to make a profit by lending money to individuals confirm that borrowers are experiencing serious difficulties in servicing their debts. Instead of backing off and letting the buyers and sellers of goods, services and labour reach their own levels of prices, be assured that the state will wade in and create further unrealistic expectations of entitlement. Growth and general prosperity can not flourish when at every stage of commerce and industry an inexperienced and usually woefully unskilled government satrap insists on telling everyone what to do.
Although the methodology used by the international agency that ranked our education system as one of the worst in the world is surprisingly indirect there is no quibble that it fails to enable our population to compete in the new high tech global economy. Even or perhaps especially at cabinet level there is scant grasp of how the country’s woefully inadequate internet connectivity is holding us all back. A president who battles with large numbers will never understand why accessing petabytes of data in microseconds is important.
The annoying rustling noise that you can hear coming from the Western Cape is not just the drumming of rain on the tar paper shelters of the unfortunate evictees who foolishly chose state land to squat on. Mostly it is the sound of dozens of new parliamentary denizens flipping delightedly through their ministerial handbooks (Original Complete Edition). Slowly the immense joys and benefits of having first call on the public purse are sinking in. “So many perks”, “And look, they will last even into my retirement!” “Why didn’t I get aboard this gravy train so much sooner?” “That new Finance Minister Nene fellow must be mad if he thinks I should exercise restraint.” “This is a life time opportunity.”  Adding to this happy hum is the noise of breaking promises and high grade hypocrisy. The leader of the Economic Freedom Fighters took less than a day to flee his high principled insistence that public servants must use public health and education services. His son continues to enjoy private school education.
The most unrewarding job in world sport must be the post of coach to the South African national soccer side. SAFA must be talking serious money if there are any candidates to replace the hapless Gordon Igesund. Compared to that, coaching even the Stormers must be fun.
James Greener
D-Day 70th Anniversary