Friday 23 January 2015

WASHED OUT



At a ratio of nearly 27 barrels of oil for a single troy ounce of gold – a millennial high – prospects for our gold rich, oil poor nation should be amazing. Instead, however, we are wondering how to keep the lights on, the national airline solvent, the broadcaster honest and the citizenry from attacking each other. The most recent spur to the financial excitement, which includes rising prices of both share and bonds, was the announcement by the European Central Bank that they are unspooling the fire hoses and will be spraying money into every corner of the euro zone at a staggering rate of 60 billion euros a month for at least 18 months. Just 1 week of that would wash away our fiscal deficit! The majority opinion is that this massive intervention is a good thing, but the price of gold, especially in euros, has risen sharply. Does this suggest that some folk feel safer in a hard asset?
Meanwhile over in Zurich, the Swiss Central Bank chose to give up pretending that it knew what the right price of its currency should be and turned that job over to the markets,. This brave and good move was quite unexpected and resulted in several speculators becoming seriously holed below the water line and sinking without trace in minutes. Let this be a warning for those who feel tempted to respond to the breezy invitations to become a currency trader that appear in our media from time to time.
The Davos extravaganza is becoming rather annoying. If the advice, opinions and solutions offered there by the allegedly intelligent and powerful were any good, the condition of the global economy would improve with each passing year. Instead, it most definitely does not. Taxpayers and shareholders are of course footing the bill for the politicians and executives who feel that a snowy background confers gravitas to their waffle. Carefully timed for this shindig, a well known charitable organisation barely managed to hold back the tears while announcing that their research has revealed that rich people own far more stuff than poor people. Just identifying this astonishing and unsuspected inequality was not enough, however, and it naturally triggered an avalanche of demands that governments must redistribute wealth and tax every one and everything into submission.
This proposal of course makes the completely erroneous assumption that politicians are the best and most effective people to spend money that other people have earned. It is interesting to note that really rich people seem to prefer setting up their own charitable foundations rather than simply pay more tax and trust the bureaucrats to make sure it reaches the right places. Nevertheless there are plenty of rich folk ambling around Davos at the moment and every mendicant and his agent is desperate to get an invitation to attend to make their pitch. Number 1 is there together with the wife who made the most credible claim for looking good in skiing kit. Our delegation includes half a dozen cabinet ministers, at least one of whom has been on TV gravely explaining that the Eskom team decided to save money and not attend the jamboree! Has it dawned on someone that there are far more important things to do back home?
At last we are going to be given sight of the list of the 204 National Key Points which hitherto had been deemed confidential. We know that the president’s private residence, swimming pool and cattle kraal is on the list but there are bound to be surprises. Aside from ports, dams and power stations (if working) there’s probably not all that much else we would miss if they fell into enemy hands. Hopefully a few breweries and wine cellars will be listed as indeed should be Ellis Park, the venue for our historic victory over the All Blacks in the 1995 Rugby World Cup Final.
For someone who was at the unforgettable “438” defeat of Australia at the Wanderers in 2006 it was just a tad sad to see that record shattered this week. Oh wouldn’t it be great if the Proteas carried this form through to world cup starting next month? And also starting very soon is the Super Rugby series. Nearly unthinkable in this present heat though.
James Greener
Friday 23rd January 2015

Friday 9 January 2015

COME IN NUMBER 1. YOUR TIME IS UP



The world of money has fallen deeply in love with all things American. The US dollar just keeps on getting stronger. Many of those dollars are being used to buy government bonds. Lenders are seemingly satisfied that getting a return of just 2%pa for the next 10 years beats just about anything else available. Presumably the sentiment is that the US is in peak economic health with everyone employed and manufacturers and producers eagerly satisfying consumer demand. Or perhaps it’s just the ceaseless assurances from Federal Reserve Governor Janet Yellen that she and her cronies are far smarter than markets in determining the price of money and that there’s nothing to worry about. For more than 6 years short term interest rates in the USA have been kept at nearly zero. One probable consequence of this policy is that it has distorted price setting and signalling mechanisms all over the world. Even here in SA share investors have to pay more than 20 times annual average earnings for a company on the industrials or financials board. Over many years of testing this particular metric, it is clear that real value is available only when that multiple is half that number – as it was in 2008.
By Christmas time our Reserve Bank had put R134bn in cash notes and coins out there in circulation. Now some of this is lost for ever down the back of the sofa and quite a bit is being used up in Zimbabwe as well, but that still is a great deal of  money that’s spread amongst 53million of us. Say five grand each, excluding the children. Interestingly this figure is almost 11% greater than last year’s total so even allowing for inflation and population growth, on average we all had more cash on hand than ever before.  There’s a huge cash only economy going on below the official radar. This will be confirmed by anyone who has watched a so-called “bakkie-builder” at the hardware store paying for their materials with notes peeled off a roll the size of a polony. School fees also frequently call for settlement in the amount of several thousands and reportedly cash payments are not uncommon. A plastic shopping bag is the purse of choice for such large amounts of cash and the car boot acts as the ATM.
Dignitaries simply love to fill their days with events where they are invited to open things, make a speech, get photographed shaking hands with grateful and beaming lesser beings and then adjourn for refreshments. The news that there is to be an official opening of  a piece of beach down the south coast which has been set aside for those who like to get their kit off  when at the seaside, suggest that this one hasn’t been researched fully. What will happen? Will the adoring throng be naked? Will the politico cut the ribbon and then undress and plunge into the briny or play a spot of volleyball? Where will he or she put her notes when clutching the glass and plate of nibbles?  Will there be media coverage? This could be great fun. What most definitely is not fun is the sight of Transport Minister Dipuo Peters and her “entourage” of more than half a dozen officials holding a press conference to announce how badly her department is doing its job. The number of casualties on our roads will undoubtedly have risen even further before she reaches the usual and meaningless platitudes and assurances that in future there will be trained, incorruptible and diligent traffic policing. I wonder if there was a lunch afterwards.
There is something vaguely sinister and disquieting about the decision to publish the school leaver’s exam results by candidate number and to omit the names. Is this a precursor to the government using just numbers to refer to office bearers at the failed and dysfunctional state owned enterprises? After all, we already know that our leader is Number 1. Will we be told that Number 32 has stolen all the money at SAA? Or that the dog has eaten that Number 113’s  degree certificate.
I used to really enjoy watching the TV coverage of the Dakar Rally. Somehow now that its in South America it rather different. Still very dangerous though. The pyjama games against West Indies begin tonight. Hopefully these will be tighter than the tests turned out to be.
James Greener
Friday 9th January 2015

Friday 2 January 2015

AND THEY’RE OFF



Astonishingly the All Share index managed to scramble back up out of the nearly bottomless pit it fell into last month. It ended more or less where it started 31 days earlier but after giving many people a severe fright. This enabled the total performance for calendar 2014 to reach 10.9%pa, a level that seemed impossible just days earlier. Nevertheless this is a lot lower than the long term average annual performance of just over 20%pa. But 2014 was the 6th year in a row in which the JSE delivered a positive return – something which has never happened before in at least the last 40 years. Is this a sign that 2015 must surely be a down year?  Markets are notoriously disrespectful of precedent.
Unpacking the returns a bit, it is intriguing to note that despite seeing a bank blow up last year, the banking sector index romped in with a 32% total return. Are the survivors really making so much money? Many of us distrust (and even dislike) Telkom so it’s dispiriting to note that it single-handedly drove the fixed-line index to a 150%pa return! With a current market capitalisation of some R36bn, merchant bankers are likely queuing up outside National Treasury waving proposals for the complete privatisation of this now suspiciously overpriced government asset. The Listed Property index reveals that shareholders enjoyed a 27% return last year and the Health Group index came up with 36%pa suggesting that something may be being mispriced in this industry. Unsurprisingly the mining index lost 15% in 2014 with platinums and coals down 31% and 27% respectively. Sadly this is one forecast many will have got right as the situation at the start of last year was not promising and everything seems to be stacked against this industry
It is fashionable to wail about the state’s financial situation. The most recent cause for concern is about alleged corruption and favouritism at SARS, the nation’s tax collecting agency.  However, over the past twelve months, total revenue collected amounted to R930 bn, which is more than 11% greater than they reported a year ago. Clearly those of us who don’t have the contacts required to be dropped quietly from the SARS address list are digging ever deeper. On the expenditure side the equivalent figure is R1 104bn which is just 7% higher than the comparable amount for the prior period. In the utterly unlikely event that these growth rates were to hold for the next 6 years, the minister of finance in 2021 would be able to boast of a balanced budget! Obviously those of us still looking for a bad news story can point to the fact that currently for every R100.00 that SARS collects, the departments and ministries spend R118.71. It would certainly help if the politicians and their employees were a bit more parsimonious in their spending habits.
The unprecedented collapse in the price of oil, mankind’s largest expenditure item should begin soon to be noticed in the prices of everything that requires transporting.. Already indignant letters in the media are demanding that stores ought to be slashing prices on life’s essentials such as bubbly and watermelons. Is there any sign that airlines are trimming their fuel surcharge? Undoubtedly producers and distributors are going to enjoy this opportunity for as long as they can and they will be surreptitiously supported by the beneficiary of value added taxes i.e. governments. Only properly educated economists understand why deflation is a bad thing. The rest of us are happy to see the prices of everything drop; except of course, the price of our own labour.
While it certainly is great to see the Proteas playing test cricket at home this summer there seems to be a spark missing among the opposition West Indies side. Pity really. Oh well one can still watch with half and eye while updating the new diary with the Grand Prix dates and the two world cup schedules. This year has a great deal of potential to either raise or crush our spirits while seated on the TV couch. Two world cups and the Afcon trophy in the cupboard by year end is an exciting prospect.
James Greener
Friday 2nd January 2015