CARBON COP(Y) 17

Anyone who can offer a view on what is happening in Euro Land and how it will impact the rest of us is going to be wrong within a few hours of making the prediction. The mess is deep, smelly and very unlikely to end well. Perhaps the only good to emerge is that it is revealing to plenty of people that most of their respected and trusted leaders are no more reliable or trustworthy than just about anyone else. Those leaders have the use of the presidential palace, plane and party planner but not much in the way of an idea of what to do except spray public money from a fire hose. And when the hydrant runs dry …..? It is very sad really. From a very simplistic viewpoint the single euro currency seems like a good idea and makes life easier for many of us. But the clever folk who said it was a doomed structure are starting to look as if they were right. But then recall the first sentence.

Most local company earnings continue to show growth and this week just a bank and a construction company unsurprisingly announced against that trend. Nevertheless the simpler valuation models still suggest very few compelling buys in the share market. A number of administrative and technical developments being made by the now all-powerful JSE are intended to make the bond market friendlier for small investors. With the unwarranted but inevitable confusion that will attend next year’s probable implementation of a new way of taxing dividends, bonds might seem like a safe haven. Outright purchases of bonds at these generational low yields are unwise though. However, there are a couple of instruments available for those who are not totally spooked by the thought of collecting taxable interest payments.

So Stats SA has followed my idea of enabling everyone to compute their own inflation rate.  At one memorable analyst meeting many years ago the usual moans of disbelief about the latest official inflation number were being voiced. The company economist was trying to fight his corner and support the data and pointed out to the senior partner that “… the CPI is not based solely on the price of Famous Grouse and aeroplane fuel, you know!” With the new Stats SA tool he can now check that point.

The levels of silliness and breathless excitement are mounting here in Durban as COP 17 approaches. This is not, as the name suggests, a new police series on TV but the next in a sequence of talking shops where hypocrisy trumps science and slogans beat reason.  The future tense will be in great demand and impossible promises will be made. Hoards of lavish-spending tax-funded delegates are eagerly awaited. There are private jet runways and first class lounges and top of the range suites which have remained unused since the World Cup except for the odd visit by local party big-wigs. The War on Carbon demands that its generals fight from the comfortable seats and the kingdom is delighted to provide them. Expect siren-wailing traffic-halting limo cavalcades sliding through red lights en route to deliver delegates to hector audiences about reducing their carbon footprint. Less welcome will be the footprints of the grubby takkie-shod and surprisingly numerous pavement preachers who mysteriously manage to find the price of a ticket to these salubrious and far-flung conference venues. Happily I shall be missing the circus. I shall be in the bush for a while and the tide will leave no marks.

Oh how nice it would be if the planners had remained with the original series of three tests against the Aussies. Two just doesn’t work – especially if we lose the second one.

James Greener

18^th November 2011

ELEVEN ELEVENS ARE ELEVENTY-LEVEN

It was another fine example of how impossible it is to get any consistency from economics. Mind you it does involve two so-called ratings agencies. These are organisations which usually demand a fee for their opinion and in spite of this have a pretty dismal record. A day after S&P announced that the good ship SA was “steady as she goes”, Moody’s said that they thought they could hear disturbing noises from the steering gear and perhaps the helmsman was battling to steer her away from the rocks that are looming. What is always consistent in these cases is the reaction of the newly “downgraded” entity and National Treasury’s indignant dismissal of this news was text book. It is true that our debt and financial positions are nowhere near as bad as Greece, Ireland or Italy but we should note that our own president seems to share the Italian fellow’s way with the ladies. And the proportion of our government’s spending that goes to service the interest on the debt is climbing. The main victim of the Moody’s announcement was the rand which moved down more than 2% against all major currencies. But then it more than recovered, presumably on the news that the wise women and men at the Reserve Bank chose to leave the repo rate unchanged. They did, however mutter that maybe the time will come when money ought to be made a bit cheaper. This encouragement of the borrowers at the expense of the savers is an uncomfortable policy at odds with the supposed needs of the country.

The same National Treasury have long failed to provide a satisfactory explanation for why they cannot ring-fence the income they derive from their taxes on fuel. This seems to be an obvious source for funding the construction and maintenance of all roads in the country. However, that cash disappears into the general state coffers where it is used amongst many other things on minister’s hotel bills and presidential jets. Instead the preference seems to be for toll roads. The welcome but costly improvements to the major routes around Joburg have been built with borrowed money that they intend to repay once the tolls begin to flow. The proposed toll tariffs caused an outcry and the implementation of the tolls has been delayed at least until February so that special interests can be placated. This in turn has alarmed the investors who lent the money in the first place and they have declined to lend any more.  Obviously desperate for some income, the Roads Agency has begun to market their so-called e-tags which offer a discounted toll fee compared to merely letting the computer read your number plate and post you a bill. Many of us are interested to see how the post office will cope with the volumes of mail this method will generate. Since the e-tag system can be linked to a bank account what remedy would one have if someone duplicated your number plate and spent the whole day travelling around the city clocking up toll fees and draining your account?

In the meantime the city around which they are driving is draining its own bank account pretty swiftly. The outstanding arrears of rates and services is an outrageous sum and it is high time they resorted to their old policies of hiring people like Jimmy Abbott the renowned heavyweight boxer and  Lions supporter to go and collect some debts.

The Financial Services Board has warned the industry that they will be very strict about ensuring compliance with their “Treating Customers Fairly” policy. Those of us who actually have customers and clients who are likely to take their business elsewhere unless they feel fairly treated, are offended and puzzled by the idea of yet another set of rules to be obeyed. What about having an alternative government to pay our taxes to because this one seems to pick on me most unfairly and often?

Now that was a rather special Test Match. Beating the Aussies in two and a half days is great. If it had gone on any longer I fear Tidemarks would not have seen the light of day and at least one local columnist would have been stuck for material next week.

James Greener

Armistice Day 2011

BACK PEDALLING ON THE REFERENDUM

For the last three months the range between the day’s high and low value of the All Share has almost always been greater than 1% of the value of the index and frequently greater even than 2.5%. Overall, however, the market has really gone nowhere. In these circumstances even the best informed are bound to make what later turnout to be poor decisions. The point here is that even if one hopes that maybe the bull has returned there are still large pockets of uncertainty and inclined selling if the spin accompanying the latest news release is negative.

Unless you are one of those fortunate but dull suits who are being paid by the taxpayers of your own or probably some other nation, you will have no time or inclination to follow the ins and outs and ons and offs of the circus that is laughingly named the European Economic Union. None of those words seems fully apposite. A particularly amusing episode in this soap opera, seemed to be about asking the Greek nation whether they would like to work harder and pay more tax and take instructions from Germans and Frenchmen. The alternative seemed to be to return to a life of dancing on the beach, sipping ouzo, breaking the odd plate and forgetting to repay loans to Germans and Frenchmen. Unsurprisingly this referendum idea has been scrapped. The serious side to all this is that Europe is a very large and important cog in the global economy. No one wins when it is so jammed up.

A tiny and nearly invisible cog in the machine is our own stuttering economy here on the southern tip but nevertheless we scored an invitation to send some representatives off to the G20 meeting in Cannes. So far reports suggest that our folk there have delivered some hectoring socialist diatribes about taxing the rich. Provided that the rich excludes the delegations of politicians and bureaucrats who are also present this is often a popular theme. However, as already mentioned there are far more entertaining topics on the agenda.

Who knew that there was an organisation called the Airports Council International and that they have just held a “gala dinner in Marrakech”?  At this, no doubt glittering event, paid for by taxpayers and air travellers, both OR Tambo and King Shaka international airports were inducted onto the organisation’s “Roll of Excellence”. It is a pity that the report of this accolade appeared right next to one about how 75% of the baggage handlers at these places arrive at work intent on stealing stuff from the suitcases they are paid to load.

The idea that economics is a subject worthy of a Nobel Price is moot. There is no evidence that research and development in this subject has enabled the planet to organise its affairs so as to avoid the cycles of booms and busts that so savagely disrupt it. That said, I am obviously disappointed that the committee this year again failed to spot my contributions. I have never been to Stockholm. Another local contender must be the salesman who flogged ten electric bicycles to the Durban Metro Police. This event was celebrated with a photo of the mayor on board one of these machines cruising along the (flat) beachfront boardwalk and an enthusiastic promise by him to ride to work at least once a week. The forthcoming Climate Conference to be held here in Durban is spawning limitless foolishness. The blurb trumpeted that battery bikes are “eco-friendly” because recharging is achieved simply by plugging into a domestic power socket. Oh dear!  Prizes should be offered to the first reporter who snaps His Worship pedalling uphill to his Pinetown home once the juice runs out.

An equally alarming picture of the Springbok Sevens new strip has also been released. Surely the Y-front pattern on the shorts is a joke? Oh! And did you see? The Golden Lions ended the season at the top of the log. Rather satisfactory I think.

James Greener

4^th November 2011

IT JUST WILL NOT ADD UP

The more cynical amongst us think that all those who marched around Gauteng to promote their demands for “Economic Freedom” have a fairly narrow definition for the phrase. This would entail the transfer of hard cash into their outstretched hands on the grounds that their undoubtedly penurious and disadvantaged background entitled them to it. It is not meant to be either cruel or flippant to point out that everyone now has the Economic Freedom to participate in any enterprise for which their skills and training fit them. The protestors would get much more sympathy if they directed their anger at those government polices which make it difficult for capital and labour to negotiate without pre-conditions that ignore the supply and demand situation. What ever the well-fed, beret-wearing, t-shirted firebrands on the truck leading the march might proclaim, the bare fact is that there is insufficient wealth in the entire country for everyone’s present demands to be met in full. Eventually one realises that arithmetic is far more powerful than promises. And that is why I worry about the bull market.

One economic freedom that we can all enjoy is to refuse the ruling party’s centenary offer of a limited number of 1 kg commemorative gold medallions priced at almost three times the value of the gold they contain. Whatever your level of veneration for President Jacob Zuma, his stamped profile can not add that much value to a disc of the yellow metal. For those looking for something more portable there are also one ounce coins, bearing celebratory images and text, on offer at R72 600. Compared to Krugerrands trading on the JSE at around R14 000 this is also an outrageous premium despite the enticement of a Certificate of Authenticity signed by the president himself. The selling agent’s breathless marketing claim that the actual trading prices will easily exceed these indicated opening auction prices is dubious. Be warned, the secondary market for these baubles is very very thin.

Maybe the suits in Euro Land have solved the crisis. Or maybe they haven’t. In fact probably all they are trying to do is make it go away until they can retire with their enormous tax-payer guaranteed pensions. The compelling irony is that it is these numerous tax-payer funded guaranteed benefits and entitlements which are a major contributor to the crisis. Another factor is the cost of lawyers whose task it is to trawl through the multi-lingual thesauruses for euphemisms for “broke”, “default” and “dishonest”. As mentioned before, this arithmetic stuff can be so darn inconvenient.

The increasingly impressive Finance Minister Gordhan laid out some undeniable arithmetic facts in the half-time budget speech in Parliament on Tuesday. He does become a little over-excited about the fiction that taxpayers should share his idealism for frequent and copious contributions to Treasury. Nevertheless the fact that the government spends lots more than it collects and therefore has to borrow more and therefore has a bigger interest bill was cogently made. I also liked his plan to claw back money allocated to departments but unspent. If you leave it there it will grow legs. Already, however, his warning about the modesty of next year’s salary rises has been rejected by the unions.

I watched in awe as All Black captain Richie McCaw lifted the Webb Ellis trophy totally without assistance from any politician or official. Our own captains have always been accompanied by a president or two to help them heave the golden trophy into the night air. Richie must be very strong. Presumably Golden Lions captain Josh Strauss will not risk the Samson effect of shaving off his luxuriant but repellent beard before he hoists the Currie Cup at Ellis Park this weekend.

James Greener

28^th October 2011 (and a pox on stores with Christmas decorations up already)

IS THE BULL FEELING DRAINED?

The October recovery has run into trouble with the JSE All Share developing a huge attraction for the 31 000 level these last few days and becoming unwilling to venture elsewhere. In the meantime the rand has sagged badly against all other currencies. There was a bit of cheer in the retail sales growth figures which might be a statistical glitch but equally could be real as all that mislaid government cash seeps into the system via personal pockets.

Plenty of politicians and others who should have known better have, over the years, travelled to Tripoli to shake the Colonel’s hand, give him a hug and enquire about the health of his oil fields and treasury. They must now all be pretty alarmed at what has befallen their friend whose last move was into a storm drain in an unsuccessful attempt to avoid his constituents.  

One of the downsides about being the boss of a country is that you meet some rather unsavoury characters in the course of your job. The sleaziest are often themselves leaders of nations. Our own president seemingly has not yet met a despot he doesn’t like and he is currently entertaining the rather unappealing president of Equatorial Guinea. The two of them were probably sitting side by side on the newly upholstered presidential couch last night watching with growing panic the TV images of angry citizens all over the world venting their fury at the lifestyles and habits of the rich, famous and corrupt. The staff would have been instructed to double-check that the electric fence was properly switched on.

Also going down the drain is any idea of what is happening in the Euro zone. Ratings agencies are dishing out red and yellow cards in all directions. Some talking heads are predicting that Portugal is going to be right behind Greece in telling its creditors a sob story. Share markets disliked the news that France and Germany were bickering about how to launch the lifeboat and it has now been estimated that it should be equipped with about a trillion euros of bailing-out money if everyone is to be saved. No mention, however, of where that money is going to come from, but taxpayers can surely expect a call.

There is still no good economic news coming out of USA but attention there is shifting to the Republican nomination debates. That contest is becoming personal and entertaining but appears to be successful in temporarily diverting people from the fact that they, their cities and their states are rapidly going bust. Back home a similar political beauty pageant is taking shape within the ruling party. One possible candidate expects this campaign to be characterised by “divisions and fast-forming cliques and cabals, pigeon-holing of unsuspecting individuals, innuendo, gossip, back-stabbing, character assassination and even physical assassination”. That pigeon-holing sounds particularly savage.

The atmosphere in the Massmart boardroom is probably verging on the violent too as they wait for the next shot across their bows from the government. Scores of politicians, bureaucrats and labour leaders none of whom have ever run a corner café, let alone a giant retailer, are desperate to impose unique conditions on the firm all because it is now part- owned by Wal-Mart, one of the biggest retailers on the planet. Wouldn’t it be fun to trawl through the Makro customer data base to see which of these interfering idiots buy Johnny Walker Black and plasma TVs at the stores they are threatening?

Reportedly the national grief that would follow an All Black defeat at the World Cup final on Sunday would be sufficiently large that it would sink that island forever. Now we can’t have that as we need to have a worthwhile team to beat from time to time so I wish them well and a memorable victory. A win for the Lions in their semi against Province is more of a problem though.

James Greener

21^st October 2011

WHO READS THE RULE BOOK ANYWAY?

It has been another week that is best described as volatile although some will claim that the bull did show himself at times. Sensibly, Reserve Bank Governor Marcus swiftly shut down any idea that SA would join its new best friend BRIC nations and send money to help Euroland get out of the its current financial embarrassment. More sense too from a senior mining executive who pointed out that nationalising an industry whose raw material is already owned by the state is foolish.

In the last few years a small unit that should be quietly and efficiently collecting the data that the state feels it needs in order to plan effectively has assumed an attitude far beyond its real status. The grandly named Stats SA is run by an erratic but colourful and highly visible civil servant who can be alarmingly belligerent towards anyone who questions his results or publishes competing data. He was so busy protecting his turf that he obviously failed to devote enough time to thinking about the huge census forms that his staff began delivering this week. Why, for example, are there more than a dozen categories of education level? Is there a need for so many income brackets each defined by limits stated to six significant figures? Why don’t they want to know about any bathrooms in the dwelling – surely a much better indication of living standards than the puzzling enumeration of rooms for “multiple-use”? If you have not yet been counted, be warned that there is a near obsession with your parents’ state of health and do, if you can, watch the way in which your full name is recorded without spaces. Note too that interruptions to power and water supplies are of interest to the government only if they persist for more than two days and not if they stopped you watching the cricket. Results of the census are expected in 2013.

By which time I hope someone will have put the Ministry for Women Children and People with Disabilities out of its miserable existence. Surprisingly the atrocious name has yet to attract the attention of the easily offended but the news is that it has attracted only 20% of its intended staff complement. Despite this understaffing the minister concerned claims that all is well. If so, why employ any more?

I am delighted to see the reappearance of that large and beautiful yacht in the advertisements for one of the nation’s bigger financial asset managers. The picture of this luxury craft cleaving the waves with sleek and wealthy people draped around the deck is exciting and suggests that toys like this will become within reach of clients who entrust their savings to the manager. Please remember, however, that the yacht belongs to the managers and not their clients. And while on the topic of asset growth, it is the time of year for glossy catalogues of tempting goodies and the 50 year-old Glenfiddich single malt whisky at R159 000 is clearly priced for government officials and youth league hot-shots. The 40 year-old at R28 900 is interesting. If you put it away for 10 years could you expect it to taste 16%pa better?

Something must be done about these Aussies. Last weekend the Wallabies gave the ‘Bokke a lesson in rugby rule interpretation and then last night their compatriots gave the Proteas a 5 wicket hiding. But at least on the soccer field they will never beat our national team’s slick victory dance routine. Bafana apparently devote a lot more time to rehearsing that dance than practicing goal-scoring because despite achieving only a nil all draw with Sierra Leone, they still put on the dazzling display when in fact it turns out that a goal would have much more useful.

Go Wales and the Golden Lions.

James Greener

14^th October 2011

THE SEAT-BELT LIGHT IS STILL ON

These must be very tough and worrying times for folk whose job it is to monitor the risks of dealers sitting at trading desks. Positions will be soaring from hero to zero and sometimes back again in the space of a few days and even hours. Commentators feel obliged to find a reason for each excursion and are always grateful when some index, statistic or price is published that differs from expectation. Another excellent scapegoat is a man in a suit (rarely a woman) preferably with a beard or glasses assuring the audience that, despite being in charge for many years, the current situation has nothing to do with them and they now have just the remedy to make it all better. Throwing large sacks of money at organisations that have already ill-used the previous delivery of money is a common remedy. A different outcome is very unlikely, however.

One indicator that is not bouncing around and has assumed a steady downward trend is an index of the dollar price of commodities. This might indicate a drying up of demand. Since it is widely assumed that China dominates consumption of these things, it is a reminder to keep a closer eye on other indicators from that country for sign of a cooling off. Contagion will be inevitable colds will be caught which will be considerably worse than the sniffle which has infected one of our noisier youthful socialist mouthpieces. This infection has conveniently caused him to be admitted to hospital instead of attending a disciplinary hearing. Because it is apparently “unethical, immoral and despicable” to enquire further on this unqualified woodworker’s health we have not learned if it was a private or a state hospital which is tending to the patient.  Anyone looking for a “Get Well Soon” card must be sure not to buy a “Sorry You Have Lost Your Job” one that is now selling well in the USA. Desperate times.

Right now the market index is poised about midway between the August low and the May high, both of which are about 8% away. No one knows where it will be at year end or even next week. Bears worry that that many companies are reporting disappointing profit growth and others are unwilling to commit cash to expansion. Growth among businesses that actually add value to raw materials is meagre and far too many resources are being devoted to fulfilling regulatory obligations. My particular favourite is the obligation to demonstrate sustainability – whatever that is. A sustainable mine is an oxymoron. As has been pointed out by many others, the end result of a successful mine is just a hole in the ground. Even paper-shufflers in the money industry are capable of sustaining little more than ignorance and greed. But this has been cause enough for crowds of folk to spend late autumn camping in lower Manhattan on an “Occupy Wall Street” campaign.

It is doubtful if anyone at all understands what is happening in the Euro zone. This week Italy received a downgrade which is financial gobbledegook for “might not be able to repay its debts” Other such pronouncements by the so-called rating agencies, that it should be pointed out have a poor record in these matters, are likely. Earlier this year an exercise to “stress-test” many banks was carried out. Banks were asked to report how much money they had has lent to which borrowers and then an accountant prodded some buttons on the calculator to see what would happen if the borrower went “poof”. Naturally no bank wished to be seen to fail this test and so many probably succumbed to the temptation not to reveal all the skeletons in all the cupboards. This week however, as the Greek mess moved closer to “poof”, bones fell clattering to the floor in several places and it is depositors and shareholders who are now being stress-tested.

Back home our stress peaks at 7am on Sunday when the ‘bokke meet the Wallabies in the quarterfinal. Close to many billions of words have been written about this event so all I can add is “Go Bokke”!

James Greener

7^th October 2011