Friday 18 March 2016

WITH GOVERNMENT FINANCIAL SUPPORT EVEN PIGS CAN FLY



The result reporting season for January year-end companies is drawing to a close and the average earnings decline for members of the All Share index is 7%. Nevertheless, the index itself has soared by about 15% since the January low, with the simple mathematical consequence of pushing the pe ratio (for historical earnings) of the 100 biggest cap shares to around 35. This level suggests that buyers ought not to be allowed out unsupervised. Shares purchased with these valuations are unlikely to deliver satisfactory returns over the next few years. But as always there must be situations worth looking at now that the commodity prices may have bottomed out. But do wait until the ratings “shock” is over.
Reserve Bank Governor Kganyago is clearly much taken with that big lever in the corner of his fancy office. Yesterday he gave it another tug, raising the repo rate to 7%. So the commercial banks now expect their prime rate borrowers to pay them 10.25% and this will cascade down and make life even harder for the majority of our citizens who are alarmingly in debt and assuredly paying even higher rates.
Beleaguered presidents, politicians and premiers world-wide are surely watching with envy and astonishment the way in which our Number 1 is dealing with the waves of unfavourable criticism about his friends, family and regime. His perfectly timed giggle and dismissive denouncement of all accusations as nonsense is masterful. He knows nothing about these ludicrous claims and questioners are told to seek answers elsewhere. Students of the political landscape deem it impossible for our young democracy to bear these insults anymore and assure us that Zuma will soon either be replaced or brought to heel by disgruntled party elders. Let’s see. Unfortunately, though, an indisputable and respected replacement candidate is not in sight.
It won’t have taken long for the ratings people, who are in town for an assessment, to reach a conclusion. One astonished peek at the Gupta Guest Book was all they would have needed before snapping closed their laptops and heading off to the beach bar for a ridiculously cheap beer.
There is really something rather quaint about the hopelessly insolvent national airline forecasting that it will make a profit soon. This prediction does, however, come with the warning that this miraculous outcome is dependent on SAA “obtaining more financial support from government”. Well there’s a great plan for any struggling business. Just get the taxpayers to send round a truck load of the folding stuff and voila! Profits. Well, executive bonuses at least.
An engineering research team have proposed fitting minibus taxis with an ear-splitting alarm triggered when the vehicle exceeds the speed limit. This, they claim, would help reduce road accidents. Did their field work not notice that taxis are already filled with a deafening cacophony to which the addition of a klaxon would only further alarm the other drivers on the road? In fact, when the great “taxi recapitalisation” project was launched about a decade ago, the design specifications for the new vehicles included seatbelts for all passengers and a speed limiting governor. Neither modification seems to have caught on. Ruthless and indiscriminate enforcement of existing traffic laws is what is needed to bring our terrible road carnage under control. Not more noise.
The National Nuclear Regulator is not quite the expected efficient and ruthless overseer of things that could harm us. This week they received applications from Eskom for licences to build and operate two nuclear power stations. NNR are expected to take around two years to give an answer! And only then might building begin. Which shows that the scurrilous rumours about our president (and his friends) arranging construction and operating contracts for personal gain can’t be true.
My phone’s calendar is overflowing with sports events to supervise this weekend starting this evening. There have already been some unexpected (suspicious?) results at the World T20 tournament in India. I wonder if $10m is still the going rate to take care of a sporting result?
James Greener
Friday 18th March 2016

Friday 11 March 2016

POWER PLAY



Over in the workshops at the European Central Bank the financial engineers are standing back, wiping their hands on an oily rag and discussing where to go for a beer. They have this week completed their latest session of tinkering with the economic engine. Their handiwork is intended to make that engine run swifter and smoother. Only properly trained economists understand precisely what the engineers have done, but simply and crudely they have made it even cheaper to borrow money. Alarmingly the cumulative adjustments of the last few years have pushed certain interest rates to below zero and into negative territory. This means that the lender pays interest to the borrower – a phenomenon that has spawned a blizzard of academic research.
Based on track records, the likelihood that these alterations will have the desired effect is low. What those desired effects might be, is rich material for cynics. Furthering and rewarding the careers of politicians and bureaucrats is the unspoken one. Stimulating growth and reducing unemployment is the headline reason.
Again, crudely, what they appear to want is first and foremost a bit of inflation Not too much mind you, but enough to erode the real value of outstanding debt. There is absolutely no chance that the capital amount of all the debt in the world will ever be paid off (nor, some would argue, is there any need to) so the idea of letting it shrivel by eating away at the value of the currency is popular. Especially amongst debtors. Zimbabwe is a recent example, however, of letting this method run amok. Lenders (savers) were obliterated.
The hot topic of the moment is “state capture”. This catchy phrase is a tad obscure but apparently refers to the phenomenon of private sector elements getting themselves into a position to exert significant influence on government decisions. In other places it is called lobbying. Many analysts believe that there is ample evidence to suggest that the Gupta family and their associates (which include at least one of Jacob Zuma’s relatives) are calling the shots in a number of critical areas. As always the simple technique of “following the money” suggests that the mining ministry is completely captured. The brief but noisy spell of musical chairs at National Treasury earlier this year was probably a capture attempt that was (for the time being) repulsed. Less visible but just as damaging infiltrations are taking place into the state owned enterprises. Hence the unhappiness and high staff turnovers. The attackers enjoy a massive advantage by having the name of the president on their team sheets. It can be noted that some senior party officials are starting to get very edgy about this development.
The recently founded New Development Bank (Brics Bank, to its friends) is supposed to open its doors with starting capital of $50 bn. Our one fifth share of this is around R150bn. So far, we have sent off just R2bn. In the meantime, the bank has announced plans to lend R30bn which shows that at least some of the other four have been rather more generous with their EFTs. Presumably the reason Number 1 said he would send poor old ex-finance minister Nene off to a corner office in this establishment is that he has to ensure that we claim a decent chunk of this loan (at least R2bn) or else it doesn’t make any sense. So far, however, Nene’s letter of appointment seems to have gone missing in the post.
It is hard to say this but those Aussie T20 players all seem to be able to grasp strategy and do sums in their head. Unlike some of our lads who don’t seem to appreciate just what it means to give away 19 runs in an over or play stylish shots for a single when the desired run rate looms large. The Proteas will need to up their arithmetic and planning skills if they are to bring home any silverware from India. The opening matches of that tournament have introduced some very unexpected country names, but it would be both interesting and sad if all the players and officials lined up in groups of country of birth. I reckon there might be enough South Africans there to field at least three teams.

James Greener
Friday 11th March 2016

Friday 4 March 2016

I SEE NO BEARS



Almost 10 000 points up in the week. Wow. The shorts must be squeezed out of all recognition. So why the sudden optimism? Surely it’s not just the news that Barclays Bank are retiring (very) hurt. The rand has improved, but not enough for all this buying to be foreign based. Anyway the buyers have regained their style and no price is too high. It’s almost like the old days with the heavy lifting being done by Billiton, Anglo, Sasol and SA Brews! The investing stuff is easy.
Yet another consequence of the tragic but alarming flow of refugees and migrants into Europe is that it is already impacting wages for unskilled and semi-skilled workers. This is likely to contribute to holding down inflationary pressures in that zone. Which of course makes it even harder for us with our inflexible and generous labour laws to compete. But there are just some glimmers of light showing through. Gold has already leapt, but the baser commodities like iron ore are maybe starting to bottom out and turn around. It is suggested that even in China steel prices are twitching a little. It’s inevitable of course. Prices and economies can’t remain unchanged for very long because every one of us is always trying their hardest to improve their own circumstances and all the little bits add up.
Which is how Stats SA arrives at one of those mysterious numbers it releases from time to time. Published in a 19-page booklet every three months, the GDP figure (R781 billion for the 4th quarter 2015) is the sum of data from 11 different economic sectors and sources. Comparison with the previous result reveals that “… the unadjusted real GDP at market prices increased by 0.6 per cent year on year.” Now that’s not good news if only because undoubtedly the population grew much faster in the same period. Fortunately, the growth was positive even if only just.  Going backwards is a bad thing and if it persists for too long the official “Recession” flag must be hoisted and politicians wear their “I am going to do something about this” face.  But only once the social engineers and planners step away from the levers of power and go and find real jobs making stuff and adding value will there be any chance of us enjoying the 5% and better growth we so desperately need.
The folk who maintain the voter’s roll say that very many of us don’t have addresses. In the first place that would make the allocation of voters to wards and constituencies a tad difficult and somewhat deceitful for local elections. And secondly it raises a few questions about how people fulfil the proof of residence requirement for opening a bank account and using a cell phone.
And then there’s the bright spark who thought it would be nice (and comparatively cheap even) if the next meeting of some Durban City employees be held on a luxury cruise liner steaming up the coast. Has he even heard of Finance Minister Pravin Gordhan, let alone his appeal for public sector belt-tightening?
Perhaps the biggest issue bedevilling our country at the moment is the hostilities at the Revenue Services (ironic word) agency.  The internet is luminous with leaks and allegations about who knew and did what to whom and on whose instruction. It has been claimed that if all were revealed, Number 1 himself would be in grave danger of facing yet more criminal charges. The heart of the matter seems to be that it is indeed possible for SARS employees to carelessly misplace files and to add things up wrong in order to please the boss and his friends. Shocking! (more irony).
Aussies at Kingsmead for a T20 tonight, and Argentinians at Kings Park tomorrow. Cosmopolitan stuff. And may the cyclists in the Argus (I know – old name) enjoy fair winds.
James Greener
Friday 4th March 2016

PS The cruise has been canned.