Despite all
the handwringing that was triggered by the incredibly long awaited increase to short
term US interest rates late last year, the long bond yield in that puzzled land
has fallen steadily. If you like, you can now lend dollars to the US government
at just 1.7%pa for a period that will cover at least two more presidential terms.
The consensus amongst savers must be that inflation is extinct. Brave call. The
equivalent instrument for rand savers is priced around 9%. That may also be
unattractive for reasons that include one mentioned later.
Those who
believe that future prices can be forecast by recognising patterns in charts of
past ones, have been especially excitable in recent weeks. The substantial corrections
and recoveries in the prices of many shares have prompted a blizzard of buy and
sell recommendations. Less technical methods of analysis, however, have yet to
uncover any really intriguing situations on the JSE. Even if the global recovery
in commodity prices begins soon, the usual connections with local demand, activity
and profitability could be obscured by the smoke from burning common sense and
lost opportunities.
The budget
turned out to be one for the button pushers. The devil is definitely in the
detail. A haze of calculator dust could
be seen hovering over the research departments late into Wednesday night. Not
to be left out, Tidemarks has also been prodding a few keys in order to offer
the following morsels for thought. The first is that despite what finance
ministers say and do the long term trends of government income and expenditure cash
flows don’t change markedly or frequently. There is huge momentum in the
collecting and spending of government cash.
Next, the
income data is the more variable of the two because unforeseen external factors
beyond the control of the poor chap in front of the microphone can have a big
impact, particularly on the downside. The global credit crunch in 2008 is the
classic of this genre and caused our government to reach the end of fiscal 2010
with R30bn less income than it collected a year previously. The immediate
consequence of that was a ballooning of the deficit which has never yet been burst.
But it also delivered a shock which appears still to be echoing through the
halls of National Treasury. Since that time annual expenditure growth has
remained in single figures (currently around 8.6%pa). In the first decade of
this century, that number exceeded 20%pa on several occasions
And lastly,
our political masters remain committed to spending way more than is collected
in revenue and even assuming that his colleagues carry out the suggested belt-tightening,
Gordhan expects to have to borrow about R139bn to make ends meet this year.
Whoops! This is perilously close to the R148bn that is required to pay the
interest on the existing debt. It really is time to for Number 1 to open an
eBay account and see what he can get for SAA and most other state owned
enterprises. That debt needs to be reduced or else the doubts about our ability
to service our loans will become even more widespread. And bond yields will probably
have to rise some more.
The Super
Rugby season begins today and local rugby bosses will be congratulating
themselves on a format and schedule designed to baffle and alienate just about
every South African rugby supporter. Yesterday many of the suits gathered in
Joburg to discuss “… raising rugby to a higher moral ground”. Really? What’s
wrong with the old favourites like Newlands, Kings Park, and Loftus?
Meanwhile the
bureaucrats have cricket by the throat. The budget revealed that the ministry
of sport employs more than 200 people spending over a billion rand a year on
rent, salaries and travel. A recent meeting between the high-ups in the game and
these spooks resulted in the assurance that “The minister’s office will be
presented with updates every step of the way”. Did none of them see the ecstatic
multi-coloured polyglot crowd at Wanderers last Sunday? All that cricket – or indeed
any sport needs – is a national team which hands out hidings to other top teams,
and the sponsors and fans will be there.
James Greener
Friday 26th February 2016
