Friday 18 December 2015

SOME TUNNELS DO HAVE LIGHTS AT THE END



Maybe the most significant economic event of the week was the American Federal Reserve raising interest rates by 25 basis points. This isn’t large but did in fact double the previous level which had been held unchanged for a decade. It took the first women governor of that institution to find the courage to don a pinny and wade into the control room with feather duster and broom to unearth the dusty and unused levers that raise interest rates. The silver haired Janet Yellen emerged unscathed as did the markets and share prices perked up everywhere. The theory is that the rate move is a signal that Mrs Yellen and her crew have spotted signs of economic recovery on the horizon. That would be nice. The price of iron ore is at a lifetime low but has ticked up a tad in contemptuous response to experts recently calling it even lower. Perhaps the metal bashing industries are getting orders again.
There are only a few more trading days left this year and there is always a chance of a big surprise but it does rather look as if 2015 will deliver an All Share total return in the low single digits. About 3.5%pa say and almost all of that will be derived from the dividends received. This will be the third lowest positive total return in 40 years (there have been 10 negative years in that time too) which will probably prompt many optimistic calls for next year. The fact is that no one has any idea, but the long term annual average is about 20%pa -- which would be very welcome next year.
Despite the return of Pravin Gordhan in time to hand poor Des van Rooyen the world record for the shortest tenure as a finance minister, few financial factors have returned to the levels they were at when Number One tested his skill as a dictator. In particular, the currency is in deep trouble and the pundits fret about the news that the dreaded ratings agencies are fumbling with the “Junk” button. Efficient overseas fund managers will have long ago reached their own conclusions about South Africa’s limitations as an investment and adjusted their portfolios accordingly. However there are those who in the absence of doing their own analysis will rely on the remarkably fallible ratings outfits and so when the axe falls we can expect our bond and share prices to dip. This should be a good buying opportunity for locals.
Whoever is in the corner office at National Treasury – and on present form by the time you read this it could be someone other than Pravin – the worrisome facts remain the same. Every single day on average Treasury distributes R3.3bn to the tax eaters. But it collects just R2.8bn per day from the tax payers. This daily shortfall of half a billion runts is relentlessly added to running total of the government’s debt, which is now nudging R2 000bn. (Or in words, two trillion rands) Now, proper economists have ways of restating these enormous and horrific numbers so that they don’t look so scary. Expressing them as a percentage of the size of the national economy is a popular ploy which also allows for optimistic hand-waving, pointing out that when the economy grows these ratios will decline and happiness will prevail. This is true of course only if the economy grows faster than the debt. But our borrowings have doubled in the last 5 years, so we urgently need a regime which can get everyone trained and into gainful and productive employment in as short a time as possible. Without that kind of development the wild dreams about nuclear power, national health schemes and no-fee education will never become reality.
An hour after sunrise here in Durban on Tuesday it will be the summer solstice and from then it will be downhill to winter! Fortunately the decline begins very slowly so there are still plenty of long evenings for a braai next to the pool. Fortunately too there have been good rains and previously dry rivers are now flowing strongly again. The Blizbokke won the Cape Town Sevens tournament and the Sharks have a new strip. What’s not to like about 2016?
James Greener
Friday 18th December 2015


Friday 11 December 2015

THIS REPUBLIC CAN’T EVEN AFFORD BANANAS



Nhlanhla Nene has twice in his career abruptly disappeared from view. The first was the occasion when as mere deputy minister of finance his studio chair collapsed during a TV interview. The other was this week.
There are many appalling developments that will follow from the president’s decision to replace a finance minister who has been trying to tell him the facts. But the saddest and most alarming is that Number One appears to believe that a cabinet reshuffle will conjure up the money that Nene insisted was not available. The sheer crass stupidity of this is desperately bad news for the country and its few remaining friends. Having a president who is financially clueless and innumerate is no longer amusing and now he is surrounding himself with acolytes equally as ignorant and uninformed. Or perhaps they are all wilfully and an uncaringly determined to loot and pillage for sole personal gain. Public service has ceased to exist.
South Africa is not exceptional in having an electorate which objects strongly to paying tax yet welcomes any and all hand-outs of government money. Hand-outs of course include salaries, grants and spending on infrastructure. However, for most folk, the fact that the two flows are inseparably linked is poorly appreciated. They feel lost and unwelcome in what they imagine is a maze of corridors and hallways filled with loathsome and rapacious capitalist bankers bustling between the national treasury, the central bank and the mint. In their minds few of the decisions and initiatives emanating from those faceless buildings are helpful to the poor. This perception is also widespread amongst the leaders and the civil servants. Even the employees of parliament went on strike the other day.
The impact of this totally calamitous cabinet reshuffle has been that the share price of the country has plunged. That is, the exchange rate between the rand and other currencies has dropped severely. In Britain one can buy a rand for less than four and a half pence. In the USA its price is only slightly more than a nickel. The sycophants have gushed that this is a terribly good thing for increasing demand for our exports without noting that for many reasons and despite the weakening rand, SA does not appear to export much more of anything very valuable these days. Simply making it cheaper may not help a great deal. That there is pretty much a global slowdown happening is also inconvenient.
 Assuredly the new man, David van Rooyen, has already been told to find the keys to the strong box and to start dishing out cash to everyone on JZ's Christmas present list. And when they find just moths and old crumpled IOUs in that box, history tells us that the bandits will turn their attention to the money in the state pension fund and the national reserve fund. The paths are well worn. It is highly unlikely that Des, as reportedly he is known to his comrades, will turn out to be a success. In his first speech as minister he said that he wanted “the Treasury to become well known to people living in rural areas.” What exactly this means is unclear but maybe it has something to do with buying votes for JZ.
Share prices on the JSE of companies that collect a sizable chunk of their earning in other currencies have risen. There is a desperate scramble to play the rand hedge game. One notable winner is the Exchange Traded Fund (ETF), called DB X USA which tracks the US stock market indices. Also the imported liquor shelves at the local bottle store were being rapidly emptied yesterday. The dividends from this investment are of course quite different. Feliz Navidad.
The local rugby stars who secured overseas contracts will be among the few South African sportsmen to be pleased with the way the year is ending. The unhappiest must be the EP Kings players who haven’t been paid for months and are becoming the poster children for the poor state of sport administration in SA where politics has insinuated itself  to a totally unacceptable extent.
James Greener
Friday 11th December 2015

Friday 13 November 2015

GIVE THAT RAND A STEROID



It is time for the suits to assemble at the Reserve Bank in Pretoria, squabble about the seats with a view and the choicest biscuits on the plate and decide what to write on the price tag for money. If these decisions actually do have an effect on the economy, they surely take a very long time to be felt. Only the youngest and keenest of analysts will watch the broadcast announcement and call clients with suitable snippets of autobabble in the hope of getting an order. Frankly the rand’s steady slide signals that inflation is likely to become a problem again in the next year or so and quarter point rises in the repo rate will have negligible effect in arresting that. The name of the game is rand hedge investing and reducing pure currency holdings while the government continues to show as few clues about what is happening and what to do about it as a (brine filled) headless chicken.
The man who coined the acronym BRIC worked for Goldman Sachs.  Then South Africa felt offended that it had been ignored and excluded from this club unfairly and shouldered itself into the group and supplied the terminal S. This week that investment bank closed its BRICS fund after a record of losing spectacular amounts of the investor’s money. Happily, no fund managers were harmed in the event as fees were still collected. It turns out that despite the catchy word there are few linkages between the economic fortunes of those countries and busts and booms were more or less unsynchronised. Probably the main lesson to be learned from this incident is that investment ideas are seldom as good as they sound. Another slick phrase that cost innocents dearly was the utterly dishonest “too big to fail” adage.  Lenders who indeed were about to fail because of ignoring every prudent rule of client adoption, were rescued with truckloads of taxpayer’s cash. Naturally this move was warmly received by the errant banks.  Now this thesis too is under investigation. Despite the earnest endeavours of the world’s do-gooders it is not possible to rid the planet of risk and things will go wrong and people will lose money. Also being shut down is the not so sleekly named Kopano ke Matla investment company. This was supposed to make money for Cosatu, the troubled trade union federation but reportedly things have gone seriously awry. Even communists find it hard to pick the winners.
Aeroplanes have been much in the news recently. The national airline, already effectively utterly insolvent, has apparently ignored a government instruction and has signed a deal to buy a fleet of Airbuses. There’s far too much haste and glib hand waving happening here for this to be a clean deal. It is after all nearly Christmas time and lavish presents are in order. Hopefully someone in Europe will take notice. Now presumably these aircraft will enjoy a luxurious first class cabin and so that makes the suggestion that the air force has spent an egregious sum of money to buy another personalised jet for Number 1 all the more annoying. As usual his response is that it had nothing to do with him because the decision was made by the military. Yet more evidence that JZ’s ranking as the worst value for money president in the world is richly deserved.
What do the students actually want the universities to look like after the transformation they demand? Do they want higher standards, harder courses and exams and longer terms so that they can compete more aggressively in the international job markets?  Do they want the salaries of the academic staff that deliver this education to be frozen or even reduced? Do they want the grounds and premises they trashed while making these demands to be restored and maintained? Do they want the laws of gravity, thermodynamics, supply and demand and the country repealed?  But that transformation word has such a different meaning here in SA that it is unlikely they will get any of these things for a very long time.
Anyone who can recall the ladies (?) who emerged from the eastern bloc to claim the gold medals in the bad old days will be unsurprised by the claim that the Russians are once again busy with their chemistry sets. It’s all about the money. As it is with the Kings who again have not been paid salaries. Obviously despite the government’s insistence, the nation is just not yet ready to have 6 sides in the Super Rugby tournament.
James Greener
Friday 13th November 2015