RAIN DOES NOT STOP PLAY

A ratings agency – actually a team of ordinary men and women with much the same data as everybody else – has downgraded Japan. In their view there is now a teensy weensy possibility that the Japanese government will be unable or worse still, will choose not to pay back the interest and principal on some of the money they have borrowed. Indeed many of the economic numbers coming out of Japan are concerning and those who haven’t lent them any money will be feeling smug. Actual creditors will undoubtedly have been watching closely and with growing alarm and the formal downgrade adds to their discomfort. Yet, as I have commented before, the alphabet soup of about a dozen successive ratings levels from AAA to D have little to do with the blunt binary situation of pay versus no pay. And further, as we saw most recently in the credit crunch, a AAA credit rating means nothing if the borrower defaults anyway. Nevertheless we can take the downgrade as a reminder that the economic recovery is a slow and potholed road. The JSE All Share index has ended the first month of the year just about where it started.

Is it one of the conditions of the Davos shindig that TV interviews must be conducted outside in the freezing cold? Have you noticed that nearly every talking head appears on screen all bundled up and their words come out in little puffs of steam? Very dramatic!  Also impressive are predictions like the demise of the euro, the certain rebound of the global economy and the suggestion that the prices of commodities especially food need regulation.  The irony of this last idea seems to have been lost on the delegates, many of whom are undoubtedly there mainly for the legendary catering. There’s a sort of regional follow-up Forum in May in Cape Town. Snow is unlikely but hot air will again be plentiful. Already the committees are working on a theme as bland and meaningless as this week’s “Shared Norms for the New Reality”

How about Famous Brands’ explanation for improved business in their fast food venues being due to the heavy rains that chased people indoors to the malls and shops? It sort of makes sense. I spent a few days this week near the mouth of the flooding Umfolozi River. The muddy torrent flowing into the sea was so strong that the waves were completely brown and choked with vegetation washed down from the countryside. Fishing was out of the question but the fridge in the bar to which I retreated was in perfect working order. 

The lack of fishing also gave me time to ponder my entry to the “Name a Prison” competition. Frankly it is an astonishingly bad idea and waste of money to take half page full colour advertisements in national newspapers to call for the names of citizens who need to be revered and honoured by having a slammer named after them. My own list of entries tends towards people who were once convicted and imprisoned for outrageous and appalling crimes against humanity but who are now free. On condition that they return to serve the life sentences so totally deserved they can name their new homes after themselves if they so wish.

And now the chaps down at Durban City Hall are congratulating each other for borrowing EUR100million at 6.7%pa. Payback of the principal (today equal to almost R1bn) is scheduled for 2026 when I think it is a fair to suggest that it might take a lot more than a billion rand to buy EUR100million. But by then very few of the fellows swilling the champagne will be around to face that problem. Borrowing offshore is a pretty fraught affair. Just ask the last SA government.

What I haven’t yet done is study the new Super 15 format beyond pencilling in July 9 as the day the Lions lift the trophy. But I have noted that the ‘bokke will not be playing at the House of Pain in Dunedin at all on their way to the World Cup final. That’s good news.

James Greener

28^th January 2011

THE NUMBER YOU HAVE CALLED IS NOT AVAILABLE

 Well there’s no need to worry about the price of money in the country for a while. The dream team have pronounced that it’s perfect.  And from the various numbers coming in they may well be correct. Inflation is down again, cars are selling like hot cakes and purchasing managers are in expansive mood.  The share market has been churning around, a shade off the all time highs although many individual shares prices have long been up in unexplored territory.

Reporting season is rapidly approaching and the news from the retailers is very good. South Africans are doing their patriotic duty and buying stuff. Unfortunately we are clearly not paying enough for some of it, as some local clothing manufacturers are being threatened with closure because they can’t make enough money to pay their workers the minimum wage.   Add to the mix that Massmart shareholders this week approved Wal-Mart’s arrival in SA, and we consumers can look forward to even lower prices. The trade unionists and socialist politicians are apoplectic with confusion about whether this is a good or a bad thing.

The Cabinet reportedly rejected the finding of their own appointed independent investigation into the impact that four wide ranging bills on labour will have on employment. The answers failed to mesh with the opinion they have of their infallibility in arranging their citizen’s lives. Oh dear. Better they all just resign from those jobs which are paid for with other people’s money and join the rest of us out here competing for a living.

What is happening at Neotel?  Their just published annual report reveals they lost more than R1bn in the year to March 2010. Now, firstly that’s not exactly speedy reporting for a business that is supposed to be delivering the long awaited cutting edge communication services to compete with Telkom. Then the board’s response to the loss is that they are “satisfied that the company has adequate resources to stay in business for the foreseeable future”. Well, if staying in business means having no visible marketing or products then that claim has proved correct for at least 10 months. More puzzling, however, is that one of Neotel’s partners has declared themselves “satisfied with Neotel’s business performance”. Amazing! In the meantime Telkom itself is very excited about borrowing $127m from some overseas folk. Now it is none of my business (in fact most of this stuff isn’t) but I wonder if anyone at Telkom has thought deeply about what will happen to their repayments if the rand does what luminaries like Nobel Laureate Stiglitz demand and falls in a heap? They must be expecting really great performance from their bafflingly named cell phone system (8.ta ?!)

I just loved the piece about the SABC CEO being allowed to resign “with immediate effect and leave with a small payout and his dignity intact – six months after he was suspended”. In what possible way can a resignation after 6 months of suspension pending investigation into “irregularities” be described as either immediate or dignified? The national broadcaster is a dreadful mess. Why, for example, should they need to employ non-English speakers in the English language services?  Job interviews should be conducted by phone with candidates being invited to read a list of words provided by disgruntled licence payers.

I suppose we ought to trust the national cricket selectors – although we can all have grave doubts about their bosses, the clowns who manage the game – but I guess that tonight’s colloquium down in the riverside bar will have a word or two about leaving out local boy David Miller. Goodness, that Cricket World Cup has been a hard one to bring home and I do wish the squad every success. But first they need to tame these Indians at home.

James Greener

21^st January 2011

BAIL OUT

There is something of a shortage of political stupidity this week Maybe everyone is so impressed by the amazing ideas tabled by the president during his Polokwane appearance at the week end that they are silently wishing that they had thought of them. Like getting the state to employ everyone who needs a job and instructing universities to pass final year students who need a degree. The state would pay for these lucky students. It is all so simple. Why didn’t anyone come up with these sorts of plans before? The state can, after all, achieve anything it wants. I am a tad anxious that so far nothing has been said about creating wealth.

Yesterday party leaders were told to stop talking and “devise practical ways of creating jobs”. Today some talking head has told us that the long queues of applicants standing at university gates were indicative of “Draconian” entrance criteria that prevented weak students from getting a place. He went on to suggest that universities ought to offer courses that any student  could enter and pass over perhaps four instead of three years. Without pausing to suggest which employer would find this sort of graduate useful, the talking head went on mystifyingly to describe such a strategy as “respond[ing] to the call of massification.” No, I don’t know either. Even the spellchecker is doubtful.

It will be a pity if implementing these schemes causes government expenditure to resume the unhealthy growth that it has so recently managed to curb. At the end of November the growth rates of both the state’s income and expenditure were for the first time in many years tending towards the quite modest  8.5%pa level.

Mind you, funding government deficits has suddenly become simple it seems. Punters were this week elbowing each other out of the way in order to lend money to places like Spain and Italy. There is always money somewhere if you know where to look and what to promise in return. Do not ever mention the “default” word though.

Proper analysts have not been silent and forecasts of which shares will do best and what level the gold price interest rates and other benchmarks can achieve are filling the pages. They may well be right and perhaps we ought to be buying equities again. My own rather simple investigations regrettably suggest that even those areas which did relatively  badly in 2010 like platinums, healthcare and life assurers are mostly all still offering lowish dividend yields and elevated price to earnings ratios.  By contrast, construction sector shares are not overvalued but almost all of the companies there have been lamenting empty order books while state’s capital project spending apparatus has been clogged up with outstretched hands.

Next week the kaftan queen will waft to the podium and announce the result of two days of deliberations between herself and the team of experts about the price of money (i.e. the repo rate). I doubt she will reverse the recent trend and help us fixed income dependants with a rate rise. But I think that there are enough signs that the economy is gradually and grudgingly starting to tick over a little faster and so can see no reason for a rate cut either. More of the same then?

They played cricket (of a sort) in the Moses basket last week to celebrate the arrival of one part of our rainbow nation on these shores150 years ago. Despite an heroic effort on the one-off pitch there is no getting away from the fact that the stadium is not really suitable for cricket and we Durban ratepayers are going to have to find some other outfit able to help us with the maintenance costs. Perhaps temporary shelter for all the Vaalies who may be flooded out of their homes tonight?

James Greener

14^th January 2011.

GROWING UP IS NOT FOR SISSIES

The bull got just 4 days into the New Year before stumbling a bit. I have been fretting for a while that he was way out of range, but  probably the lure of setting a new high in 2011 will return to dominate sentiment before too long. The event that caused the pullback was an alleged strengthening of the US dollar which did indeed bounce versus the euro, but only just back to early December levels. The USD must inevitably slide while that government spends freshly minted dollars in an apparent attempt to coax its citizens into returning to their spendthrift consumer habits.

The big developing theme in world markets would seem to be the rise in commodity prices – particularly food. With this country now sadly a net importer of food and not obviously opposing the shocking incidence of often fatal violence against successful farmers, this is a very worrying development. There may indeed be investment opportunities that will arise from the situation but social strains and unrest are possibly more important factors to keep an eye on.

That Sepp Blatter chap has plenty of things to answer for. Not least is his cutesy trick of pulling the winner’s name out of an envelope. Basic Education Minister Motshekga used the stunt yesterday to disguise the fact that her department had failed to get a third of the nation’s school leavers to even a remotely useful level of education.  Because most of us have at some stage whiled away many hours in a class room we are naturally all experts in the field of education and how it should be run and so the professionals are never short of free advice. Nonetheless, the sad fact is that already a large number of the two thirds who did “pass” will have discovered that their country has little need for them or their proud achievements. The state’s example of promoting inexperienced and unskilled people to positions of authority has done the youth a huge disservice. They are now loath to believe that substantial effort and time are required before one can truly aspire to the corner office with company credit card and car. They would probably also be appalled to find out just how hard the people in the private sector who deservedly fill those posts need to work to keep both their own job as well as those of their employees. Even a distinction in “Life Orientation Studies” does not, I suggest, provide adequate preparation.

The large number of people who have been killed by lightning during this summer’s storms is indeed very regrettable. I suspect, however, that after taking into account population increases, that this cause of death remains proportionally very low. Certainly less likely than being killed by a politician speeding at 235km/hr. Nevertheless Local Government and Traditional Affairs MEC Dube should be admired for her trips to visit and comfort the bereaved. Less easy to praise is her announcement that she would be asking the government’s Science and Technology Department “to conduct research on ways to prevent lightning strikes, especially in rural areas”. While she may not be aware that the country has long been at the forefront of research into understanding this awesome natural phenomenon, I am worried that the MEC seems to imply that urban lightning is somehow less significant. Hands up all those who have had their modems and fax machines fried by a bolt from the blue.

The research that really needs urgently to be done is how an off stump can be knocked half a centimetre off line by a speeding ball and the bail doesn’t come off? Jacques Kallis deserves all those man of the match awards but that miserable piece of wood deserves to be burnt and its ashes stored in an urn.

James Greener

7^th January 2011

BRIC A BRAC

 It looks as if the All Share index will end 2010 about 1000 points short of topping the all time peak attained in 2007. Nevertheless the bulls claim that this is the perfect platform from which to soar off and up into the New Year. Indeed share prices can and do go just about anywhere but some of us old curmudgeons believe that when valuations do so, there are messages to be read. An All Share dividend yield of 2.2%pa is not attractive.

A consequence of the compression of interest rates into an ever narrower band above zero is that the differences between the various yields offered by different products become smaller. I have uttered this particular piece of stockbroker heresy before but repeat that the 2-year RSA retail bond paying 7.50%pa seems attractive for those who feel that inflation will not be a threat in that period and that Governor Marcus will continue to lean on the “repo down” lever.

A few years ago Analyst O’Neill decided that Brazil, Russia, India and China displayed sufficiently similar economic and social characteristics that a pithy term would be useful when referring to this class of significant but not yet fully developed countries. He coined the acronym BRIC as a sort of collective noun. It has now turned into some sort of club which this week invited SA to join. Why this is important or good is not immediately obvious but it sure made the rand improve yet further and at R6.75/$, the latest annual GDP figure of R2.6tr converts to $380bn.which places us around 20^th on the world leader board – next to Switzerland! Many other developing nations appear much higher up the board with scores of more than double this figure so they are puzzled and hurt at being ignored by the self-appointed BRIC selectors. Now our own President Zuma was hanging out in China just recently, so we can conclude that he must have been handing out  glossy pamphlets highlighting the many attractive snow-free venues available in SA for future BRIC luncheon dates. It obviously worked.

Tidemarks tries to avoid making forecasts even on tempting occasions like the start of the year. As usual, the proper analysts are moaning that this time it is harder than ever to see what the future holds. Nonsense.  Any dive into the future always carries exactly the same degree of difficulty – impossible. However, I do think that next year’s implementation of the long promised change to the way that dividends are to be taxed may cause alarm and despondency amongst investors.

Basically the switch from the current 10% Secondary Tax on Companies to a 10% Withholding Tax on Shareholders should provide work only for accountants and similar species. The amount of tax collected by the National Treasury as dividends flow from companies to local shareholders ought not to alter materially. However, there are numerous potential sources for confusion and misinformation lurking in this landscape, and just one alarmist headline could easily lead to panic. As already discussed, dividend yields are thin enough and any threat of further trimming will be unpopular. My belief is that companies will need to declare their dividends both pre- and post the Withholding Tax and I, for one, expect that the post-tax figure will be the one to use when comparing prior years and dividends. As I said, there are ample sources for confusion.

But I am not confused when I wish all my readers a very happy, safe and healthy New Year. Prosperous will be good too.

Even while the Proteas were making a total mess of the test at Kingsmead the local newspaper was treating Sharks fans to pictures of their boys stripped down and training in the equally muggy stadium next door. Seriously guys, it is still December, just.

James Greener

31^st December 2010.

WHAT A LOTTO I GOT

There are a few more trading days left in 2010 and it looks as if the All Share may just fall short of  breaching the 33 309 peak set in May 2008. Mind you, one Christmas-tide many years ago the Russians suddenly decided that they needed to learn about Afghanistan the hard way and that popped 5% on the index overnight. So far the overall market index has delivered around 17% total return for the year. That will be way better than most investors were hoping for or pundits were forecasting which probably means that most of us will have missed much of the rise by being too liquid. And interest rates came down too. This is a very difficult and weird game.

It may be worth pointing out that the actual quantum of earnings being reported by the Top 40 companies today is about the same as was being declared way back in 2007. In the intervening period, after one more quarter of excitement the credit crunch snapped down, earnings collapsed and it has taken many months of hard work to recover even this far. But share prices today are nearly 15% higher that they were then, which implies that buyers are expecting a very significant improvement in company profitability into 2011. In my view there is little evidence to support such a development. There is a rather too much hope and faith resting on the promise that the government’s infrastructural spending plan is well underway. Indeed construction has been one sector where earnings have not improved in recent years.  My own suspicion is that because of corruption and maladministration much of budgeted expenditure has been diverted directly into private consumption without first having travelled through professional services, procurement and fabrication. It is alarming how many businesses appear able to declare director’s bonuses before actually starting the task they have been appointed and paid to do. This model neatly deals with the expected profit margin up front without the tiresome and messy task of doing and completing the job and then preparing accounts to see if there is any profit left over.

It is just too easy to poke fun at the World Youth Festival which appears to have been particularly successful in attracting rain if not the advertised celebrities to drop off in Pretoria. The theme of the festival is “Let’s defeat Imperialism” - a term which my reference suggests is not easy to define today and which is now often used as a term of abuse. Nations practicing “true” imperialism are rather thin on the ground in the early 21^st century although some particularly skilled and well trained youth claim to be able to detect “ideological imperialism” just about everywhere.. I would have thought that gambling and lotteries were despicable Imperialistic practices, nevertheless the festival organisers were extremely efficient in liberating a useful R40m from the Lotto, an act that has proved to be just about the last thing they have managed to do successfully. The defeat of imperialism has given way to the more bourgeois matters of shelter, warmth and food. The good news for the rest of us is that it cost taxpayers way less than a single world cup match and some of the delegates might actually like the place and return one day as rich tourists. The KZN delegation, however, has already returned as grumpy kids.

All year two quite big and sometimes excitingly violent rows have been taking place where the only people interested are the participants and the newspapers, thankful for something to fill their pages with. Both concern organisations known by their four letter acronyms which if they settled down and worked properly might make a huge contribution to the country. In the mean time the rest of us will continue to have no interest in either the SABC or COPE.

The way the third Ashes test is going, I think all 22 players might be asked to undergo a lie-detector test or donate a sample for analysis. It’s a funny game cricket – but not weird.

James Greener

17^th December 2010

HOW DO YOU TURN OFF THIS INTERWEB THINGY?

After two weeks of news isolation while exploring a corner of the Kruger Park, it has been great fun to return to the absolute furore being caused by Wikileaks. This is yet another wonderful example of how people – especially those who claim to be in charge – utterly fail to grasp how the internet is completely changing the way the world works. If these documents that are now public really are as sensitive as the spooks claim, then perhaps they ought to have done the job for which we pay them and kept the darn things properly secret. As it is, so far all the documents have revealed really is the unsurprising truth that politicians, diplomats and bureaucrats are just as grubby, self-interested, clueless and fond of gossip as all the rest of us. Their attempts to prevent us mere plebeians and taxpayers from finding this out are almost as amusing as watching the stammering denials that anyone ever wrote that the president of a neighbouring country was mad.

The JSE, and indeed most other share markets are enjoying almost the complete opposite of free fall as investors and speculators search for alternatives to keeping money in the bank. They are also not buying bank shares and that sector continues to fall away relative to resources and stocks with more direct exposure to consumers. The Transvaal holidaymakers have appeared in the kingdom in their thousands and a trip to the malls shows no sign of shopper’s shyness. A newly listed instrument that offers buyers exposure to the price of crude oil in units of rands per barrel is yet another currency hedge vehicle to consider for the time that our dear rand falls from grace.

Do we not have more productive things for people to do than trawl through company reports counting how many women work in the place?  Presumably it is us taxpayers who employ these folk to howl with outrage at their discovery that “companies demonstrate a lack of coherent gender transformation […] polices, with little evidence of […] designated responsibility measured through performance management mechanisms”.  No one trying to run a business where people are employed on the basis that they add more value than they get paid, have any desire or time to understand let alone implement nonsense like this. I wonder what will happen to the small firm that they found that did not have any men on board.

Not only has the pres generously cancelled the R1.1bn debt that Cuba owes us for kit bought more than ten years ago, he has lent a further R1.4bn to this obviously high risk borrower and in return the younger Castro pinned a medal to his chest. Hey! That’s our money you are dishing out sir, even if it is a lovely gong.

I also missed the third quarter GDP announcement – not all that encouraging  – and Minister Patel’s magnum opus on how to get the country growing by getting more government officials to offer advice and give instructions on how the rest of us should do stuff. That’s not much good either. A good research piece in Biz Day by Annabel Bishop points out that public sector remuneration is growing by almost 30% pa because of both higher salaries and new hires. There’s your first problem right there minister. And please also note the calculation that adding the proposed health scheme to the spending side of the budget might require marginal tax rates of around 70%. Oh dear me, no.

Equally disturbing is the picture of a man in loin cloth who was trying to raise awareness of some doubtless critical issue at the climate talking shop in Cancun this week. Please note sir that despite its reputation for balmy weather there can still be some unseasonably cold spells in Durban in December and you might need to pack more gear for your next appearance.

I am delighted to report that I was watching a pack of wild dogs at the time when I could have been witnessing the Scots feasting on Springbok.

James Greener

10^th December 2010