BEARABLE BUDGET

It would not have taken Minister Gordhan long to guess his predecessor’s password (either “maria” or “all blacks”) to log on to the department network and hack into Trevor’s files. Thereafter, a quick bit of copy and paste followed by a little tampering with the numbers and he toddled off to deliver the national budget. The result was condemned by many for being unimaginative and lacking surprises. The success of the budget relies a lot on a speedy end to the recession and also on everyone behaving properly and patriotically. The forecasts for both income and expenditure imply huge reversals to present trends

The belief that taxpayers will scoot along to the nearest SARS office and confess their past sins is heart-warming. Everyone was politely reminded that corruption was a bad thing. In the light of recent revelations about the opulence of a junior office bearer in the ruling party it would only be fair if the rest of us stand aside and let the one-time woodworker have the first opportunity to explain his income to the tax man. And thereafter let’s hear from the two so-called A-list Celebrities who crashed their Lamborghini and Ferrari into each other during a show of machismo and poor driving on the main street of a sleepy village in the kingdom.

In the meantime we wait for the deluge of riches that the World Cup will deliver in mid-year. But before that arrives, the bureaucrats are taking care that their own needs are ensured. For example, there’s the proposal that any bar that dares to switch on the TV for customers to watch “the beautiful game” must buy a R50 000 licence and pay a turnover levy for the duration of the tournament. The cherry on the top of this outrage is that the levy will be used to fund courses in avoiding alcohol abuse. Too late. This blatant piece of revenue-raising has already raised abuse levels.

Is there a dawning realisation that the World Cup is a FIFA boondoggle with only limited short term benefits to a few small segments of the host nation? More important, however, is the likelihood of long-term liabilities that we all will bear. The soccer itself will doubtless be amazing, and the South African people, stadia, and host cities are all eager to be welcoming and friendly, but is there really demand for a stretcher in a tent pitched on a school playing field in June in Johannesburg at R600 per night?  Are people staring to panic that the circus will sweep through and leave them no better off?

Last night the Federal Reserve in Washington unexpectedly increased the discount rate by 25bp to 75bp. This 50% increase in the price of the money that the central bank lends to the commercial banks was accompanied by the clearly silly contention that: “…The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy." The immediate market response was for the dollar to grow even stronger and it has now gained more than 8% over the euro this year. In currency markets that is huge and it will be upsetting plenty of business plans.

The JSE decided, however, that this rate hike was threatening and curtailed the rally it had been enjoying.  The index will end the week near 27 000. Reporting season is in full spate and around 30 companies reported half year results this week. Worryingly, less than half of these reports were able to show earnings growth. One-time giant Anglo American again skipped its dividend. Shareholders will therefore have endured a period of at least 24 months without any income.

As feared, the Proteas encountered serpents in Eden Gardens. Here in Durban, the Shark faithful were all for introducing NZ referee Keith Brown to a snake or two after losing to the Chiefs in the dying seconds. They still have one more point than the Lions though.

James Greener

19^th February 2009.

THIS LITTLE PIGGY WENT TO PARLIAMENT.

News and market reaction this week swung wildly from Woo Hoo moments (allegedly less American were looking for a job) to End of the World stuff (the PIGS will sink us all). These and all other claims are based on the infamous numbers that are churned out endlessly by institutions and organisations all of whom assure us that their credibility and reputation remains undoubted. Very few of us bother to ferret around in the fine print and disclaimers which specify the assumptions, conditions, and caveats that accompany the bald and naked number that the politician has seized on to prove his or her amazing skill in organising a  party in a pump room. PIGS, by the way, is the snooty acronym for those allegedly decadent and spendthrift nations that fringe the southern edge of Europe. Portugal, Italy …

Sceptics of the declining US jobless figure pointed to the fact that it routinely counts only folk who had actually tried to find employment and that the unprecedented snow falls of late had probably discouraged many from doing that. Hence the welcome drop in the number of unemployed Americans. Back home it was claimed that the presidential promise of creating half a million jobs in the second half of 2009 was 97% successful. This too sounds like a snow job.

Speaking of snow, why isn’t anyone complaining that the US is not fit to host the winter Olympics. Their organisation is obviously poor. The only place in the country not buried under feet of the stuff is the place where the games begin tonight. There is definitely no snow here in the kingdom either. I have spent most of the week hull-down in the pool with a crisp Castle quart in the ice bucket on the paving nearby. My hippo-like behaviour was occasioned by the long awaited rise in temperature and humidity that saw me donning the sarong and bathing costume in obedience to the saying that there is no such thing as bad weather, it is just a case of having suitable clothing.

Totting up the recent company announcements and trading statements here on the JSE, revealed a small majority that could be classified as optimistic and so the All Share managed to hang on around the 26 000 level. Among the bad news stories was the one from Anglo Platinum who announced a rights issue to raise around R12bn. That’s a lot of money, but since the share price has been under quite a lot of pressure in the past few weeks the news was obviously not unexpected.

 Minster Gordhan delivers his first budget speech next week and I think it may have quite a few nasty surprises in store. Unlike Trevor Manuel, he does not have a long-established jovial Mr Nice Guy image to maintain and I think he may be short on laughs and sound bites in other languages as he sticks it to us good and hard. He knows that he has little hope in getting the huge and growing crowds of tax eaters to exercise any restraint but he does know pretty much where all the taxpayers live and how much money they have. So guess who he will address?

The cricket test result from Nagpur was a sheer delight and I look forward to the Eden Gardens encounter. My impression of that venue, however, is that there always seem to be people making fires in the stands; a practice which is even less friendly than that repertoire-challenged brass band that sometimes turns up at St Georges. With the Super 14 now underway, Lions’ fans have to decide whether to go to Ellis Park or the High Court building where so much of the action still seems to be happening. I wonder what is the sense of forcing a player to run on to the field in a jersey he so clearly does not want to wear?

James Greener

12^th February 2010.

WHAT’S “DEFICIT” IN GREEK?

I am sorry if I am getting boring about this but the Government’s finances are getting ever more messy. Once a month the National Treasury releases an update and the latest figures confirm that the Zuma regime has no concern for, or perhaps more worryingly, any idea of what they are doing with the fiscus. In the last three months of 2009 the state needed to borrow an average of more than R400m per day in order to cover the shortfall between its out-of-control spending and the severely recession-squeezed income flow. This is a massive amount and suggests that the government would find it very useful if the cost of money could be reduced a bit.

Already we have heard the odd mutterings about perhaps ditching inflation targeting as a guideline for the Reserve Bank and indeed money market interest rates have sort of drifted down in last few weeks. I wonder if Governor Marcus is being encouraged to get her “rate cutting” frock over to the dry cleaners in preparation for the next meeting of the committee?  

The other aspect of this matter is of course the question of where all the spending is going.  As 2010 related construction projects wind down, there has been an increase in the stories about the now jobless workers wondering if that was all that the World Cup had for them. The answer seems sadly to be yes. All that remains for most of us seems to be to pick up the litter once the fans leave.

President Zuma has returned from his jaunt to the northern hemisphere and awarded himself a long weekend to recuperate. In spite of his pleas for privacy I am afraid that we now all know what he does to relax and young women are advised to be alert. It is now very obvious why the President always has a grin on his face no matter where he is photographed. 

Tax season is drawing near and it has been interesting to note the vehement insistence of clients that any profit-taking sales are out of the question because capital gains tax in particular is especially unpopular. I too share this attitude even if the maximum rate is no more than 10% of the profit. Is this new antagonism towards paying tax a result of the suspected undisciplined and uncontrolled spending spree already discussed?

Tempers are running high in Europe over the suspicion that the Greeks may not have been telling their new EU companions the complete truth about how much money they have and to whom they owe what. I doubt they are the first or last to massage figures in order to get in line for a hand out from Robin Hood. It is just that as winter lingers on in Europe, Athens must be one of the warmer capitals for the suits to visit and chat about things. Nevertheless this crisis is being blamed for worldwide equity market weakness and today the JSE All Share index has sliced through the 26 000 level. In about another 4000 points or so I might start to get interested in suggesting that investors resume a program of nibbling away at their liquidity levels.

The six nations tournament kicks off this weekend  but I regret that the  Super 14 which starts the following week tends to occupy fully the space in my brain devoted to the oval ball.  I tried to care that Egypt won the Cup of Nations but I was more than a bit disgusted by the soccer chiefs’ decision to punish Togo for withdrawing after their team were hit by deadly gunfire. Is it a numbers thing? How many team members have to be killed before official sympathy and understanding can be expressed? Soccer is a hard game to love.

James Greener

5^th February 2010.

MINES? YOURS![1]

The market is getting a caning. In just a few days the All Share has lost over 5% as it watches developments on Wall Street with wide eyes. Once again I must point out that very few of the results and trading statements released on the JSE this week were upbeat about making profits. The reality is that in the US particularly and crucially, jobs are still being lost and house values are below mortgage loan balances. Nevertheless  spurred on by the sight of  amazing and unprecedented government relief and rescue programs the professional pundits  world-wide feel obliged to bang on about how the worst is over and economies are showing every sign of improving. Remember the green shoots of six months ago? More and more investors are coming round to the idea that someone is crying “wolf’ rather often. I believe that the recession is a really big mess that is not yet finished with us. But in places some value is going to be revealed.

Luckily once again my invitation to join the great and good in the snowy luxury of Davos failed to arrive. The sole downside is that I did not score one of those natty scarves in SA colours that our delegation were sporting, but frankly the weather down here in the kingdom has little call for neck warmers. President Zuma made lavish use of the word “culture” when he was asked rather impertinently to explain his domestic arrangements to an international audience. My guess is that most of the delegates in Davos would be loath to discuss some of their own cultural activities which take place around a glass of gluhwein in a cosy hotel room far from home. Our President is far too engrossed in his calls to Zululand every night to indulge in that sort of thing.

The background hum of muttering about the need to nationalise the mines just does not stop despite some of the big guns denying that the government has any interest in the idea. The current demand is that mines ought to be “thoroughly democratised and controlled by the people”. There is scant evidence that any enterprise, let alone one as technically complex as mining, benefits from this undeniably cumbersome style of management.  That this program could begin with expropriating mines which are not profitable is extra bad news for taxpayers. Pouring money into a bottomless pit, which is both figurative and literal, is even more unappealing than usual. There are plenty of loss-making mining companies on the JSE boards if high risk buying is your game.

On the subject of shareholders, it is puzzling to see that a portion of the rather avaricious golden handshake demanded by the departing Eskom head man comprises shares in that business. If I were the board I would seize the opportunity of his implied valuation and print up a truck load of share certificates worth R85m and send them round by courier pronto. It may not take long to find out if ex-CEO Maroga left behind a solvent business or not.

Departing Protea’s coach Mickey Arthur, will, however, wisely have asked for his package to be paid in folding money with the Reserve Bank Governor’s signature on it. The Cricket Board have confirmed their place amongst the elite and inept cohort of SA sport administrators who would rather destroy their sporting code than tell the government to get lost. The dismissal of the coach and selectors this week was even more disappointing than the news that beer will not be available at any World Cup match. Instead some insipid American brew will be on sale and the suppliers might well be right with their claim that they will not run out despite having to ship tiny cans of the undrinkable stuff in from miles away. In this country gentlemen, a carry pack of beer is a dozen Castle quarts.

James Greener

29^th January 2010.

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[1] In the days of open outcry trading floors a buyer could accept an offer with a shout of “mine” while a seller could satisfy a bid by shouting “yours”.

BEARS AND CROCODILES

It is not yet worrisome, but it is noticeable that the All Share index is now below the level at which it started the year. In fact this is also the case for most of the developed markets except for Japan. What’s going on? Is this the end of the unprecedented bull market bounce within a much larger long term bear market downturn?  No one knows but it is certain that already many shares are not as overvalued as they were just a few days ago. However, this is not yet the buying opportunity that I am waiting for.

The week’s financial pages have been full with ever more bullish forecasts about how this year’s growth in SA will be wonderful. Indeed it may be, but I did notice that only one of the recent company trading statements was really positive about prospects and that was actually from a special situation and the company is about to disappear from the JSE boards. Yet another slap in the face for small investors. Even the mighty SAB Miller reported that folk are not drinking as much beer as they are able to brew. Although I can report that current Durban weather has necessitated some heroic efforts with the bottle opener.

It must be very confusing to be a banker in the USA these days. Their woes began when they decided that it was feasible to lend money to folk who had no chance or intention of repaying it. When the unreasonableness of this strategy began to bite, the President rode into town under a large white hat and doled out huge sacks of almost free cash. Relief and happiness abounded. But it turned out that there were few clients willing to borrow all this money and, keen not to examine the gift horse’s dentures, the bankers awarded themselves large bonuses to celebrate their survival and their “too big to fail” status. This caught the eye of the taxpayers and lenders who had provided the money in the first place and they drew the President’s attention to this practice. Last night Sheriff Obama donned a black hat and handed the banks a rule book as thick as a plank. The bureaucrats have prepared a blueprint for a different and allegedly less risky money lending scene. The market’s knee jerk reaction is to not like it. The rest of us will have to wait and see, but it is rare for a political plan for the allocation of any resource to achieve its stated objective. There is no one more resourceful at loophole location than a banker separated from the spoils.

Our own cabinet will end a three day huddle today. Even allowing for refreshment breaks and the time set aside for President  Zuma to call and whisper terms of endearment to his large and numerous family, there will unfortunately still have been an opportunity for the socialists to have come up with more ways to spend other people’s money with very little effect. Barring, of course, for their own bank accounts. The new-found concern of the ruling party that “too many (of its) members” have a “councillor for life” mentality will be unlikely to alter the rather comfy status quo any time soon.

The USA announced that in future just about anyone who wants to visit the Land of the Free must first obtain a visa. In an unrelated development came the news that the Abu Thembu nation had seceded from South Africa. The declaration neglected to provide the location of this new country. I rather hope that it is not anywhere near here, since presumably travel to and through King Dalindyebo’s  new realm will require a passport and I am sure to forget to take mine when popping down to the bottle store..

I expect that a larger than usual crowd will gather to watch the end of the Dusi canoe race on Sunday. At least two crocodiles have been sighted in the waters around the final straight and expectations for a thrilling finish are high.

James Greener

22^nd January 2010.

TICKETS PLEASE. PLEASE BUY TICKETS

There is a decided air of optimism about investment prospects for the new year. Forecasts of as much as 25% growth in earnings owe some of their heft to the low base created by last year’s carnage. My view is that the share prices are already discounting that sort of rise. My concern is that in fact there are still very few signs of credible and real – as opposed to state stimulus driven – recovery in most industries world wide. It does seem that the Chinese are off like a rocket and sucking in all the raw materials they can find. My question, however, is who are they going to sell their output to? The citizens of the traditionally big consuming Western nations seem intent on paying off debt and rebuilding balance sheets. Here in SA our imports have slowed down dramatically as well. A handful of trading statements were published this week and the majority of them warned that the second half of 2009 was tough and earnings would be down. The good news from the retailers is that they did enjoy some growth in sales but clearly their costs grew faster.

Although the official numbers indicated that the recession in SA ended in the middle of last year, anecdotal evidence and personal experience here in the kingdom is less convincing. One frustrating development is that local suppliers are not getting their orders filled by overseas manufacturers. Presumably the makers have scaled back production and are letting relatively insignificant markets like ours fall down the queue.

After leaving interest rates low for so long, some central bankers seem to be growing restless and eager to demonstrate that they can make a difference. Market-determined long bond rates are drifting up all over the place as the borrowing needs of governments inexorably ratchet up. The impact of even marginally higher rates will be very damaging on the still severely indebted households in the US, almost half of whom reportedly owe more on their mortgage than the house is worth. Back home newly installed Reserve Bank Governor Marcus has decided to cut back on the bill for biscuits and this year the Monetary Policy Committee will meet only every two months. Opinion is pretty solid that they will not cut or even change the repo rate when they meet in 10 days time. In any case the rand weakened quite a lot all on its own this week.

The soccer bosses are getting a little testy over the news that South Africans are not buying fistfuls of World Cup tickets. Apparently there is even little demand to attend the matches where our own national side will be on the field watching the other guys scoring goals. What the policy makers in suits who believe that talent and ability are not the sole criteria for selection appear to ignore, is that fans like to support winners. Teams or individuals who fail  regularly to hoist the silverware – or at least get very close to it – are really not fun to support.  Ticket pricing for the tournament may indeed be generally affordable but two of Bafana’s matches will kick off in working hours and folk who actually work for a living rather than warm free seats in the executive suite will find it hard for example to get to Bloemfontein on a Tuesday at 4pm. And then the greatest reason of all for not buying tickets yet is that we can  remember how last year, during the Confederations Cup, the organisers, anxious to get the stadiums full, threw open the gates. It is quite likely that we may see similar tactics in June. So why not just loiter outside the grounds as kick-off approaches and wait for the turnstiles to be switched to “auto”. The second best thing that could happen is that you get to watch 90 goalless minutes sitting next to someone who paid several hundred euros for their seat!

Please can we collect all 20 English wickets this time.

James Greener

16^th January 2010.

2010 KICKS OFF

The media have been delighted to soak up all the New Year forecasts pouring from the heated brains of proper economists and analysts and fill their pages with the inevitably different views about what will happen to the price of everything in the coming weeks and months. “Proper” economists and analysts are those who have convinced their employers and their clients that their work is sufficiently prescient or interesting that they should be paid to produce it. Thanks to the internet, however, pretty much the whole world can immediately also access the pearls of wisdom and the so period of exclusivity for the payee of most information is about nil. That business model must be near its end. Old bears like me lumber on in the secure knowledge that half of all investment research is useless and harbour shrewd ideas of which half that is. Which sage, for example, predicted a year ago that the All Share total return would exceed 30% in 2009? Not I for one!

On the face of it, it should be an easy game sifting through all the numbers for a hint of what is hot and what is not. Take the government’s expenditure, currently growing at over 20% per annum as an example. While it is a trifle worrying that the President appears to have chosen the wedding industry – starting with his own enthusiastic and allegedly serial contribution – as one of the main engines of growth, areas of business beyond the provision of leopard skin accoutrements and white dancing shoes must also be benefiting from flows from the public purse. Are the construction counters now all fully priced? Is there any consumer goods share still offering value? Just who will make money from the World Cup?

Regular readers will be disappointed if I did not remind them of the trouble brewing in the Revenue department at that National Treasury where the inflow of funds has been slowing alarmingly. Unsurprisingly there have been record government bond and money market issues. The good news is that yields on offer are still proving attractive for local and foreign lenders alike and there appears to have been little difficulty in raising the cash. In some other emerging market this has not been the case and some spectacular scenes of “failed auctions” have been reported.

It was claimed that the President, by making public and formal the social escapades that many other national leaders allegedly keep private, was seizing “the moral high ground”. This is just as alarming as the newspaper article that included his name in a list of “school failures” along with Sir Richard Branson, Albert Einstein and the lady who founded Weigh Less. The item was supposed to hearten those poor kids who had failed the increasingly irrelevant school leaving examinations by pointing out that there was a future without a certificate.  

On a clear day from the top of the world’s latest tallest structure, the Bur Khalifa in Dubai, it is claimed that the horizon is 80km distant. I presume that for a fee one can ascend the almost 900m and savour the view which would I imagine be dominated by sand in three directions.  Hmm. Down here in the kingdom just R75 buys you a ride to the top of the new Durban soccer stadium arch. For a smaller sum you may climb the stairs. I have not yet attempted either route but I am certain that the little bit of sand you might see from there will be camel free.

After the test in Centurion I spent some time explaining to a baffled Mexican guest how a game lasting 5 days and which could have been won with even the last ball, still ended in a draw. Yesterday’s identical result at Newlands that brought near delirious excitement to the Barmy Army has me pretty baffled too. Something about once is bad luck but twice is …?

James Greener

8^th January 2010.