WHERE THE HELL ARE WE?

The JSE All Share index has improved by more than 20% since August. The last 7% of that gain has happened in the first few weeks of this year. So what’s going on? Firstly note that compared to almost all other equity markets the Joburg recovery is among the smaller ones. Several markets will be in double digits for their January performance.  It appears that investors have decided, probably wisely, to ignore the gloomy data and forecasts and instead to insist that economic growth is about to reappear or at least if it doesn’t not to let that get in the way of them buying shares. Certainly, almost all this week’s local company announcements about sales, revenue and earnings have contained reasonable and in some cases exciting positive numbers. Turnover is happening and profits are being made, despite warnings that house prices are 25% too high and global growth will be a mere 3.3% this year.

People have lost interest in the Eurozone’s ceaseless and ineffectual efforts to get its affairs in order. Debt rescheduling is going to be an ongoing sport that will possibly apply for Olympic status before long. By the time it does all blow up – if it ever does – investors will long have forgotten the analysts crying wolf and urging people to take cover in sensible assets and currencies. Mind you the fact that gold also has been moving upwards in these first hectic weeks of 2012 shows that there are a few scaredy-cats who like the idea of owning something that governments cant easily track down and tax or confiscate.

This week I made use of SARS’ online payment scheme for the first time. My one-man campaign to use only the postal services to communicate with our tax man in an effort to highlight the deteriorating service levels of that business has collapsed. SARS simply don’t care that letters are not delivered and would seem to have decided that sufficient tax-payers are compliant, obedient and computer-savvy for their collection rate to be satisfactory. The speed and efficiency with which my payment was siphoned off to the state coffers was terrifying. Imagine what it would be like if a similar efficiency existed when requesting an ID book or an “unabridged” copy of your mother’s death certificate (my personal nemesis at the moment). One big story this week was the huge and frustrating backlog at the outfit that maintains the register of businesses (CIPRO). Tax payers ought to be compelled to withhold all taxes due until outstanding requests to the state are fulfilled.

My new “smart phone” boasts a truly amazing suite of mapping and navigation applications. Sadly, however, the elves in Finland who compiled the map of SA must have been in touch with a particularly reactionary and confrontational lackey at the SA government’s Place Names Department. I am now truly a stranger in my own land as there are huge swathes of country where not one place name is familiar. My Eastern Cape homeland is unrecognisable. Grahamstown, Port Elizabeth and East London have vanished. Even Umtata is now called King Sabata Dalindyebo. A recent call for tenders in the local newspaper listed a dozen municipalities not one of which I recognised. Maybe that’s why the Posts Office has given up delivering mail. They have no idea where to go.

A very puzzling official statistic has been released that suggests that the volume of food being sold is as much as 5% less than a year ago. That seems unlikely and is probably yet another indication that the data being collected and processed by the bureaucrats is getting ever more dodgy. Perhaps this explains why the bulls are not in the least worried by GDP and similar allegedly bearish parameters. They are simply wrong.

Reportedly very few companies are clamouring to be associated with SA cricket and offering to sponsor the various series. The domestic T20 competition is presently without a sponsor despite the great popularity of the tip and run form of the game. Maybe the sober suited banks don’t wish to be associated with scantily clad dancers who gyrate on floodlit stages after each boundary is scored. Or are they just worried that the money seems to vanish into a hole?

James Greener

27^th January 2012

THE BULL HAS A VICTORY DANCE

Once again after clearing up two days worth of tea cups and biscuit crumbs, the Monetary Policy Committee sent Governor Marcus into the front room to say that interest rates were just perfect and that not enough has happened in more than a year that was worth reacting to with a change in the price of money. Fair enough, but it is true that consumer inflation has popped out of the target range on the upside, the JSE All Share index is setting 4 year highs and most companies directly exposed to consumer spending are reporting tidy sales growth. Frankly, with that sort of data, it is hard to decide what to do with the repo rate, so to let the sleeping dog lie seems sensible. Just check him for a pulse from time to time.

This year the Davos jamboree for analysts and politicians clashes with my timeshare week at St Lucia. So even if I had cracked the nod, I would have turned it down.  No contest: warm sea, empty beaches, cold Castles, hundreds of hippos and thousands of crocs versus acres feet of snow, far too many overdressed people, hot chocolate and many million words. It is not as if anyone in Davos will explain why despite all the advice that was offered there last year, the world still spent 2011 lurching closer to another recession and Greece is even less able or likely to repay its debts. And now there are some doubts about lending money even to France. The fact is that borrowing in a currency that you don’t control and can’t print when repayment time comes around, can cause embarrassment.

Mind you it is difficult to embarrass anyone who holds high office. Someone in the presidency claimed with a straight face that having a back-up plane shadowing the one with the Prez on board is standard procedure “in case it suffered mechanical failure.” This raises several questions including one about transferring the rather bulky (but nimble on his feet) JZ between aircraft if the first one began to splutter a bit over the ocean. Far better for us all if we just upgrade him to First Class on SAA. He might even meet his next wife on board.

The executive placement business must also be doing well. At times it seems that the sole news in the money pages is about executives departing or arriving the corner office. Public sector posts seem to be the most volatile. Shortly before having to answer cheeky questions about where the money has gone, departing incumbents frequently choose to use the side door on their way to begin a spell of suspension on full pay But recently the private sector revolving doors have also been whirring. Undoubtedly the pressures of meeting both shareholder expectations and government directives must take its toll.

For example it seems that there are new and complicated rules about how to measure turnover. Reportedly this development has been missed by many businesses with other things on their mind. Even in a sophisticated first world economy these regulations must seem often pointless and nitpicking. Generally all one tries to do is to provide goods and services of sufficient quality and value that customers and clients will surge through the door waving money. Enough of those unlikely beings and you can then consider hiring more employees and so on in a happy upward spiral. The bookkeeping must simply be accurate and capable of quickly identifying fraud and impressing bankers and shareholders. Recently the Post Office’s own banking arm was scammed for millions. The government’s FICA requirements did nothing to stop or identify the crooks. Simply, the managers were not paying attention.  Perhaps they were swotting up on the turnover rules.

Soon we might learn who the new ‘bok coach is, what happened to Cricket SA’s money, and how much time soccer players spend rehearsing their goal scoring dance routines. Expect great heights of choreography at the upcoming continental championships.

James Greener

20^th January 2011

BULLS AWAY

Already confusion and dismay is trickling into the press and websites about the change in the way that dividends will be taxed from April Fool’s Day. The key fact to which I cling is that the change should be pretty much neutral for the fiscus. That is they should collect about the same amount of money with the new withholding tax as they did with the old STC. Therefore, provided the companies play ball, shareholder’s net income ought to be unaffected. This means of course that declared and payable dividend amounts will need to be greater (excluding any growth of course) than they were, so that after the10% tax deduction, the shareholder’s portion remains the same. One definite victim of the changeover will be the calculation of dividend yields and growth rates. It will be important not to compare apples with pears! The market may take fright until it all settles down. In the meantime the bull is back and raring to go.

South Africa now chairs the United Nations Security Council. Whichever suit from Pretoria actually gets to sit in the top spot, he or she is welcome to it, as the agenda for that body is always packed with nearly insoluble squabbles between deeply divided parties. Already our Prez has complained to the Council that the United Nations does not treat the African Union with enough respect. But career diplomats are never going to jeopardize their expense accounts by acknowledging that the problem there lies in the total misuse of the words United and Union. Hopefully though, the chairman will introduce the other members to the great South African tradition of leaping to one’s feet to sway rhythmically while chanting an impromptu ditty that encapsulates the moment. Frequent and lengthy refreshment breaks are also traditional.

The National Treasury was very excited to announce that they had this week borrowed $1.5 bn in the overseas markets with little difficulty. It was pretty cheap too; just 270 bps over US treasuries, way cheaper than nations like Spain or Ireland can manage. The trick here of course is that since both the interest and the principal will have to be repaid in US dollars, misery and hardship looms if the rand weakens. Only old bears like me remember the country’s notorious “debt standstill” 30 years ago caused by rand weakness. The next day SAB Miller proved the attraction of beer over government by borrowing more than four times as much in the same markets. Unlike the nation, which has raised the money mainly to pay off older debts, SAB are using their cash to buy another brewery. In Australia.  Next time the Aussies beat the ‘bokke in anything we can take comfort in the fact that they will have to celebrate with an SA owned pint!

We still do not yet have even the simplest result from last year’s census. This is because all the forms are still sealed in 135 000 steel boxes while over 1000 people are being trained how to count the 64 billion characters of data on the 235 million loose pages waiting inside those boxes. Sadly, while impressive and even precise,  these are not the numbers we are expecting and we will have to wait until November to find out how many of us there were last October. I trust the fish moths have not found their way into the boxes and there will not be shouts of dismay when they are unlocked and thrown open.  This has not been an efficient exercise.

The delightfully named Russian satellite Phobos-Grunt is falling to Earth. Once again the owner of this piece of valuable scientific instrument turned heavy junk is airily dismissive of the consequences that might arise if bits of it fail to burn up on re-entry and land in someone’s back garden or worse. You will hear quite a lot more than mere grunting if it does.

With yet another cricket spot-fixer identified and other sports officials looking shifty I am worried that perhaps even the women’s beach volley-ball might be rigged. Mind you, I never know who is winning anyway.

James Greener

Friday the 13^th January,

FANCY THAT

The current ruling party was founded 100 years ago in Bloemfontein of all places. A fitting centenary celebration party has been planned. Those of us who declined the invitation to attend or in fact never received one will have to be content with paying for some of it. Intriguingly, for an organisation with working class appeal, the opening event this weekend is to be a golf tournament. Very egalitarian.  Thereafter, however, things will tend to follow the usual program of political gatherings with gales of talk and prodigious sluicing and browsing. Singing and dancing will certainly occur. Perhaps even fisticuffs. . Even the railways are attempting to cash in on the occasion by offering just 84 tickets on a dedicated luxury train from Joburg to Bloemfontein return for a mere R2020. (Meals and bedding included). That seems like a bargain. But then who cares about value for money? Not politicians.

As has already been pointed out ad nauseam, last year the JSE was a really volatile place with not a sign of any trend taking hold. Even a bearish trend is at least useful since it signals that somewhere ahead buying opportunities will present themselves. In just the first four trading days of 2012 there has been more of the same, with daily moves of far more than 1% in market indices, currencies and commodities.  The most interesting story is perhaps the strength of the US dollar and Wall Street. Presumably we are witnessing demand for alleged safe haven assets, as it appears that fixing their currency crisis was not among the European New Year resolutions.

 For 14 months there has been one very solid trend in SA and that has been the price at which the Reserve Bank claims to lend money to the banks. The repo rate has been unchanged at 5.5% and regular meetings of the brains trust in Pretoria have reached the conclusion that this price is perfect and needs no adjustment. The policy of letting sleeping dogs lie is widespread amongst central banks and tweaks to their base rates have been few and tiny. Unfortunately this has failed to trigger any buying sprees among their citizenry and debt-fuelled consumption-led economic recovery remains on the endangered species list.

It is interesting to conjecture that previously financially illiterate and unaware people are now able to discuss these matters with their peers via the internet and change their behaviour accordingly. Learning about the perils and pitfalls of compound interest and the venal practices of the money lending community from a Facebook Friend might have more impact than any pamphlet from the bank.

During December those smartly uniformed folk at the immigration desks processed 3.7m people as they either arrived in or left the country. Every time these figures are published it surprises me how large they are. 2.5 m of the border crossings were by foreigners and occasionally some talking head boasts that the country is attracting more than a million tourists each month.  Presumably a large proportion of these visitors have merely popped over from a neighbouring country for a spot of Christmas shopping. Undoubtedly this is a very important source of customers for shops close to the various border posts and it would be interesting to compare their total spending with that of the type of visitors which are more commonly thought of as tourists. That is the milky-skinned poor souls clad in creaky fresh khaki shorts and sealed into a rented car piled high with carved wooden goods, whose eyes grow wider as the elephant ambles even closer.

Cricket in the kingdom is in as big a mess as our national soccer side The Dolphins are bottom of the log and the Proteas were flummoxed by the Kingsmead pitch. Fortunately amends were made at Newlands and the series win against Sri Lanka is satisfying. Bafana’s international fixtures have been downgraded to kick-abouts and their hosts in Equatorial Guinea this week forgot to book them hotel rooms.

Happy New Year

James Greener

6^th January 2012

MERRY CHRISTMAS

Some much needed rain is falling here on the kingdom’s beachfront territory today. This will drive visitors and locals alike into the malls and shops and in a few weeks it will be announced that a record retail Christmas period has been achieved.  The Reserve Bank’s figures reveal that there is currently about 15% more notes and coins in circulation than a year ago and this is way above inflation so one must conclude that, on average, folk have more spending power in their pockets and purses. Which is a good thing. On some days that bad ol’ recession just vanishes into the haze.

Which is what I am about to do and I hope you have already done. The JSE is closing early to day and next week is open for only two and half days as Tuesday is a holiday. That will  be time enough, however, for the foolhardy to issue their 2012 forecasts.

Have a wonderful, safe and merry Christmas.

James Greener

23^rd December 2011

MELLOW BRIC ROAD

In the ongoing and seemingly limitless confusion about what is happening and more importantly what may happen in the European markets and currencies, the talking heads have seized with relish on the very obvious fall in the price of gold. At last there is a significant number to waffle about and “definitions” of bear markets have been dusted off and draped around the shoulders of the yellow metal. Of course it depends entirely on which currency you are pricing the stuff in and here in SA the fall has really not yet been severe enough to attract the term bear. This is because the rand has sagged a lot in response apparently to some heavy selling of our shares and bonds by non-residents.  For those who feel they don’t have enough insurance coverage against politician stupidity and currency weakness this is a handy dip for some more accumulation.

It is not difficult for bears to find sustenance just about anywhere one looks. My own particular favourite at the moment is the news that all sorts of bubbles may be bursting in China. Reportedly the property market there is plummeting and credit is becoming harder to obtain. One commentator remarks that the “BRICS are falling like bricks” but despite our effective self-nomination and election to this club our markets have not followed suit and the JSE will probably be among the smallest losers of the year. Nevertheless if every Chinaman consumes just one fewer item than the world was hoping for, then producers are in for a less than merry Christmas. Perhaps, however, the news from the USA, still by far the biggest and most important economy, is on balance rather more bullish. Sure, the debts and cut backs in public services at all levels of government continue to provide satisfying stories for us to gloat over. But there are signs that the worst may be over and the less visually challenged bulls claim to have sighted some indicators of returning jobs.

As matters stand, going into the last few days of the year the All Share total return for 2011 is around two and a half percent. This is disappointing and quite liable to be erased (or doubled) in a short burst of now commonplace excitement between lunch and tea on any day between here and Hogmanay. It definitely isn’t the 20% pa that we need to re-establish that wonderful trend that we enjoyed for so long. Equity investing has become defensive and a tad boring. Bonds, however, do seem particularly risky as both interest rates and inflation are edging upwards.

One of the JSE’s big ideas driving their takeover of the Bond Market was to make it more accessible and friendly to individual and small investors. While the merger is now a fact, I am not surprised that the private investor has yet to surge into that market. It was not that long ago that bond yields here were well above 10% and some of us can remember 20% This would destroy a bond portfolio bought at present levels. For the insistent there is a very satisfactory ETF that tracks the government bond index and also be aware of the newish ETF that buys just the so-called inflation linked bonds also issued by the state. Both of these instruments offer almost risk-free (but not necessarily loss-free) investing. In passing, it is amusing to read about the dismay and panic that has followed the news that bond rates in several euro zone nations are now above the allegedly disaster level of 7%!

Some of the earliest of the renamed streets here in Durban are back to their original names following the unearthing of some legal glitch in the original process. Nothing was said about that process being insensitive, unnecessary, costly and stupid. The argument against changing a name from one now unremembered and possibly dubious dignitary to another whose fame is equally mystifying has nothing to do with disrespect for the newcomer but everything to do with continuity and history. Surely the number of roads being created in this ever expanding metropolis far exceeds the number of folk deemed worthy of being remembered by a length of tarmac.

But now it’s time to go and watch some test cricket.

James Greener

Day of Reconciliation 2011.

COP OUT

The residents of Durban poured into the streets last night to gaze in awe at the skies above the International Conference Centre. Hopefully the dramatic fireworks display that was reflected in the tears of pride and appreciation that rolled down the faces of the gathered rate and tax payers marked the end of the COP 17 boondoggle. We were humbled that our leaders were using our money to stage such an appropriate nature-friendly display of extravagance to thank the Parties who had attended the Conference for the 17^th time. Those residents lucky enough to live alongside the roads linking the gritty downtown venue with the luxury hotels of the north coast were able also to see for the last time the weary and exhausted delegates as they were whisked past in their police-escorted, blue-light flashing, traffic-law flouting convoys. Some found comfort in the knowledge that these hard-working servants of the people would soon be in their comfortable sea-facing rooms with well stocked mini-bars and 24-hour room service.

By most accounts it seems that the conference was an outstanding display of hypocrisy and privileged consumption. No document or memorandum that could not have been knocked up by people staying at home and using the internet was published. But lots of folk got to spend several days in Durban (sorry about the weather chaps) practicing very bad science, displaying some astonishing ignorance, arrogance and bad manners. As with all these international gatherings one rarely gets to see a final set of accounts to see if the costs were greater or less than the benefits, but I  do hope that at least some members of the hospitality industry here in Durbs are feeling better off today..

I was extremely fortunate to be out of town for all but the dying moments of the circus, but one excited news item I did see insisted that the gathered throngs had discovered a new and magical business strategy that would bring prosperity and create jobs. It seems that manufacturers and businessmen need only make their products and services eco-friendly and a hitherto untapped community of wealthy and eager customers and clients would be delighted to pay premium prices and drive up sales and profits. And so, to cater for this wonderful new demand, employers would need to throw open their gates and welcome the large numbers of well trained and disciplined workers waiting outside. Who would have guessed?

Equally amazing is that despite some recent heroic intra-day excursions by the market indices, the average investor is merely 10% better off than they were at the 2008 market index peak. Significantly, all of this return has been derived from the dividend portion only. This is why mostly only well-managed, dividend-paying companies remain my choice for investment portfolios.

And why, if the Euro Zone is in such a mess, has the euro currency not completely tanked. In the same way that an excess demand for shares has not emerged in the last few years, no overwhelming supply of euros has swamped the currency markets in the last few months. Puzzling, but it suggests that many people are rather certain that the euro will survive.

It is also puzzling if not very embarrassing for someone that one of the Durban harbour pilot boats managed to miss the enlarged harbour entrance by a country mile and fetch up on the beach after bouncing off some rocks. These are the guys that the big ships are obliged to pay to have on board when entering or leaving port. Fortunately, no one except taxpayers were injured as the damage repair estimated at R1 million was described by the port captain as “minimal”. So not only is the 5 cent coin being withdrawn, the amount of R1m is apparently barely worth mentioning.  Inflation is undoubtedly on the rise.

 Thank goodness that some test cricket is starting again in a few days. It really is the ultimate in sport but let’s hope that the New Year sees the departure if not the arrest of the crooks and thugs who ludicrously are in charge of this and many other sporting codes.

James Greener

11^th December 2011