PRESS # TO SPEAK TO A REAL PERSON

It must be something of a let-down when, a few weeks after your appointment to be Governor of the Reserve Bank, it dawns on you that there are only two things you are allowed to do. Either raise the repo rate. Or drop the repo rate. At first you enjoy prowling the huge office with private lift and exotic wood furniture. The view out over Pretoria is stunning. The computer has lightning fast connection to Facebook and Twitter and there are some very nifty games loaded, but as soon as you try to boot up anything that looks like work all the keys except the up and down arrows are disabled. This week to alleviate the boredom you gave the up key two firm taps and gratifyingly, a few things like the rand and the JSE perked up. But now there’s two months before you can do anything again. Perhaps you will be invited to make a speech explaining why you and all your predecessors believe that making money more expensive will make other prices less so.

Somewhat unexpectedly, except of course by the permabulls, the JSE all share has staged a very valiant comeback and by month end (that’s 5 pm tonight) could even deliver a January total return figure around -3%. Astonishing and rather annoying for those of us awaiting single digit pe ratios before topping up our portfolios. Since the rand has also perked up a wee bit, this suggests that at least some of the buying has come from offshore. When viewed in other currencies the price of many South African assets must be mouth-watering. Let’s just hope the foreigners don’t just crate them up and take them home though!

NECSA is (or rather should be) a quiet, unobtrusive enterprise dabbling with nuclear physics. Despite being totally state owned the South African Nuclear Energy Corporation seems to have a successful market for their product range of glow-in-the-dark type materials used often for medical purposes. One would assume that the staff would be mostly white-coated nerdy types managed by ruthlessly safety conscious suits. However, there are deep and violent upheavals going on at NECSA which are hard for outsiders to follow. Undoubtedly there must be considerable sums of money at stake, and the source of so much mysterious moolah is quite likely to be one of our president’s new best friends. That will be the one who is going to get a very secret and egregiously overpriced contract to fit us out with nuclear power stations. Hence the (very nasty) musical chairs going on at NECSA to get a seat nearest to the trough? An interesting aside to this story is that the obvious acronym, SANEC, was already in use by those nice people from the Netherlands who want to do business with us. This suggests that the rebranding process from the previously named Atomic Energy Corporation was rather slapdash.

Equally alarming is the corporate bloodletting taking place at the Receiver of Revenue’s office. SARS is already very good at tracking down any loot that we citizens try to hide so it is puzzling that some officials there are trying to effect a major reorganisation in that agency. There is abundant speculation that next month’s Budget speech will have to announce even more and painful ways to squeeze revenue from the population. Could it be that cronies and backers of Number One have been whispering in the presidential ear that they would be much obliged if SARS manged rather carelessly to delete their files. Hence the need to place obedient and trustworthy cadres at the coal face. Just saying.

The dodgy government project which seems to have been set up both to buy votes and reward loyal manufacturers and distributors of set-top boxes for terrestrial digital TV has lurched back into prominence. Taxpayers are now funding layers of lawyers to defend the government’s decisions not to encrypt the SABC TV broadcasts and also to give away 5 million boxes free. This unwarranted delay in migrating viewers away from the old analogue broadcasts is partly responsible for the country lagging woefully behind its peers in internet connectivity measures. Priorities are terribly awry.

So if the Proteas dominate the pyjama games will they give us back the Test mace? I doubt it.

James Greener

Friday 29^th January 2016

RAIN AND SNOW

Number One, plus a pretty large retinue of countrymen and women, were in Davos this week to show off their sponsored fur-lined clothing selections. It is doubtful if any of our official delegates at this annual World Economic Forum were able to make many useful contributions to the theme of this year’s jamboree which is “The Fourth Industrial Revolution”. It’s not at all certain that we down here on the southern tip have even completed the first three.

Somehow JZ must have dodged his minders and managed to seize a microphone and podium to assure everyone that the South African economy was not only open for business but was also “resilient”. His understanding of that word seems to be in the same league as his command of large numbers and commodity price drivers. Poor. Most talking heads think that our sad drought-stricken country will fail to grow by even 1% this year. Although great rains are forecast to arrive soon, it’s already too late for grain harvests and prices of most foodstuffs are setting all-time highs. 

What undoubtedly will not be poor, however, is the catering arrangements at the parties which take place as a reward for attending the conference sessions. Squadrons of economists, politicians and head honchos take it in turns to show off their Power Point skills and score points for how many in the audience stay awake. The talking heads stand in the snow and ask silly questions in front of the cameras. The real story at Davos is networking to Olympic standards.

It is doubtful that any of our financial markets have reached their nadir yet. That is the rand can still weaken further, share prices can fall lots more and interest rates are certain to rise. The few special situations like the Breweries deal do provide the odd spark of light halfway down the tunnel but it looks as if the All Share index is headed for a really bad monthly decline of well below -5%. Several sectorial indices are already into double digit declines. Fairly shortly the December year end companies will start to publish their results and the extent of the damage will become clearer. Already the aggregate price earnings ratio of the 100 largest market cap shares on the JSE has fallen to around 13. A decline in earnings of only 10% by most of those companies could see that ratio fall to single figures – a much more interesting level for buyers.

A consequence of the very weak currency is that the rand value of offshore held assets has grown pleasingly. This is exactly what a rand-hedge strategy is designed to achieve. However, this means that the percentage of offshore assets compared to total portfolio value can exceed the limits imposed by the Reserve Bank’s foreign exchange department. The sole but alarming remedy would be to sell offshore assets and repatriate rands – a process which seriously prejudices the local portfolio owner’s interests. This is a development to watch and those managers with capacity for further offshore investment could well see inflows.

Just three weeks into the year it is very dispiriting to be a South African sports fan. Without saying another word about the cricket where only the politicians could be satisfied with their efforts, even the forthcoming Super Rugby season looks bleak. Not least of all is the uncomfortable conference structure foisted upon us as a result of both New Zealand and Australia telling the suits to leave them alone and billet the Japanese and Argentinians elsewhere. And there’s a different bonus point system to be implemented this year. Add to this the fresh claims for the disappointing but somehow inevitable revelation that no sport is immune to financial inducement for a particular outcome. Perhaps even the women’s Beach Volley-Ball at Rio will be rigged. But I have no idea where they tuck their bribe money.

James Greener

Friday 22^nd January 2016