UNEXPECTED BENEFITS FROM PAYING TAX

This morning, the All Share index failed by just 17 points to burst above 41 000. This bull is alive and well and determined to take charge. Buyers are loading up, unconcerned that sellers are demanding and getting ever higher prices. Is there no news that might cause pause or caution? Or is it that being invested in shares beats keeping your cash just anywhere else? It’s this latter reason I think. It certainly makes a mockery or trying to make prudent and sensible stock decisions. Just close your eyes and buy!

Suddenly its budget time again and it feels as if there has been a moratorium placed on cabinet ministers making foolish statements. Are we being prepared for some really bad news? As pointed out last week, the revenue collections are slipping ever further behind the spending programs so the need to find some extra sources of significant cash through taxes is very pressing. Forecasts that Minister Gordhan is going to soak the rich also correctly point out that this would not raise a great deal of money. Reportedly there are just 2 500 taxpayers whom the tax man thinks are really rich. If they each chipped in an extra R1m of tax a year that’s a mere R2.5bn which on current form the lads and lassies at National Treasury would whistle through in less than a day and a half.  However, at least one talking head feels that targeting the rich is still a good idea because it would “creat(e) social cohesion and improv(e) the integrity and morality of the tax system. It is politically the right thing to do.” Well that’s certainly debatable. Isn’t the tax system in place in order to raise money and not to make everyone glow with civic pride? Data shows that like many nations, our budgetary problems lie largely on the expenditure side. The country simply can not afford a government with so many unproductive employees on its payroll, nor supply so much in handouts to the needy. It is indeed a terribly difficult dilemma and perhaps explains why wise people don’t enter politics and attempt to resolve it

Here in the investment industry, already every activity we do (buying, selling and collecting income) attracts a tax of one sort or another, so can we hope to escape the net this time? Probably not. Socialists just love trying to modify behaviour of which they disapprove (in this case trading for profit) with taxes and levies that make no sense. Muttering has been heard about a change to the buying tax. This is alarming and if enacted would substantially threaten liquidity on the JSE in return for a relatively miniscule income. The infamous plastic bag levy is a great example of this type of foolish legislation. It collects a trivial amount of money, which disappears into the general revenue account – at some unknown national administrative cost – and still trees and fences are festooned with the discarded bags and packaging.

It’s alarming to see hints that Eskom may be slipping back into the fantasy realm of thinking that small coal producers armed with a wheelbarrow and two shovels can make a contribution to the coal supply needs of the giant utility. However laudable and understandable supporting small entrepreneurs might be, the fact remains that their customer is a heavily populated country reliant on large extractive and manufacturing businesses who simply can’t tolerate disruptions to the power supply. I wonder what truth there is to the rumour that the last time we suffered rolling blackouts (aka load-shedding) due to similar mishandling of coal supplies, Eskom board members and executives were fitted out at state expense with emergency diesel generators.

Even if this weekend’s Midmar Mile swimming event is the most appropriate sport for the current weather, local rugby kicks off this weekend. The match of greatest interest to me will be the showdown between the Lions – relegated from the Super 15 -- and their replacement the Kings, from my home province in the Albany Thickets. This could get nasty.

James Greener

8^th February 2013

BLOWING IN THE WIND?

Things are getting pretty tetchy at the door of the National Treasury coop as more and more chickens are struggling to get home to roost. This week it was revealed that in calendar 2012, our politicians and bureaucrats managed to spend a record-setting amount of R184 bn MORE than even their sleek computerised revenue collection services had extracted in taxes. This 12-month deficit is almost 25% larger than was reported a mere six months ago. The tax eaters are pulling on their spending boots now that their role model and figurehead has been confirmed in the top job for the next half dozen years. However, bond yields actually declined a bit showing that no one has any worries that people will be hesitant about lending money to Zuma and his merry bandits in order to cover this shortfall. Curious.

Also curious was the sight of the dollar losing ground versus the euro. The side with the currency that will now buy 12% more dollars than it could in July  is an assorted mismatch of quarrelsome nationalists all lying to each other about their finances and determined to get someone else to pay for their time in the sun. The declining currency, however, belongs to a single country that still runs, by a good margin, the largest economy on the planet and which amazingly is showing signs of gradually pulling itself out of a debilitating slowdown. Maybe there were things whispered in the bars at the Davos knees-up that have not yet filtered down to us mere mortals. The US bond market is weakening, with 10year yields touching 2%. Although on a chart, the 50bp that have been added to this yield in the last few months look benign, the reality is that bond holders will have taken some pretty hefty losses. All that creaking in the rigging suggests that the winds are picking up.

Anyone looking for more financial puzzles can mull the local share market which delivered a very useful 3.2% last month. This was despite double digit declines in many of the retail shares and more backsliding from the gold and platinum miners. Their woes were exacerbated by the Minister who drew on her total lack of any experience at meeting growing payrolls while losing customers to deride mine management’s plans for survival. If you think she was unreasoning and angry then, just wait until she finds out that no profits implies no taxes paid. Most of the heavy lifting in the index came from the two effective rand hedge stocks of SAB Miller and Richemont which propelled their sector indices also by double digit percentages.

Obviously my decision not to drink beer in January (nor to buy expensive handbags) had no impact at all on projected earnings of these two companies. However, this nation’s love for and obsession with a winning sports team is a wonderful and exciting phenomenon utterly misunderstood and ignored by the self-obsessed kelptocrats that so mismanage our sport. At last someone has told Bafana that the object of the game of soccer is to hoof the ball into the opposition’s goal and that there is no need to perfect the victory dance routine without doing that several times first. The city here is incandescent with excitement as our team advances to the quarter finals in the Moses basket stadium here tomorrow. If we win, the budget deficit can go to multiples of GDP for all anyone will notice or care. Now that the minister of sport has all but declared the Proteas' captain Graham Smith a National Key Point  perhaps he too can expect serious upgrade to his digs?

Visiting St Helena island in the mid-Atlantic fulfilled a wish. Like most isolated places it is unique and intensely fascinating, however, it would be a good idea not to annoy the Brits as  it is still their destination of choice for banishing people to. Napoleon and 6000 Boer war prisoners were not the only ones sent there. Only a nine-hole golf course and no Wimpy or sandy beach. Rather windy too. A challenging spot to live in for any length of time, ask the Basil Read chaps there building the airport

James Greener

1^st Beer Day 2013

LIFE ON THE OCEAN WAVE

The JSE All Share index is now in its sixth month of almost uninterrupted ascent and it is hard to remember any specific pieces of good news in that time that might normally be expected to drive such optimism. There were, however, all kinds of what might be considered bad news, only they weren’t. Investors are looking through the problems and pitfalls that we analysts wail about. Instead they have firmly believed, correctly as it turns out, that most companies are still able to find customers and make sufficient money to distribute to shareholders. In the last 10 months the dividends paid by the industrial / financial sector have been growing at a rate of almost 20%pa.  That is astonishing, especially if you believe the story that the nation’s economy is growing at barely a tenth of that rate. It feels as if trouble ought to be brewing.

Developments in this land are providing incredible material for future generations of economic historians. One intriguing event this week was the demand by an idiot that overseas customers for fresh fruit should now cease to buy from South Africa. The reasoning apparently is that this will punish those farmers who are suspected of underpaying their workers. I trust someone has pointed out to him that in the absence of sales there will in fact be zero wages.  The cynical amongst us know that there is in fact scant real concern for “the workers” in all this fuss and it is about the organisers getting recognised and invited to join the gravy train in the more luxurious coaches closer to the restaurant car. The blame for the ruined industry they leave behind is shoved onto the usual legacy scapegoat.

Globally, unemployment is becoming a giant headache and the obvious conclusion is that the policies and actions of the pinheads who claim to run our countries was the cause of this calamity. And yet they still demand our votes and support so that they can “fix” it.

Is there not  a set of prices (wages) at which each one of us would, metaphorically speaking, be prepared to take in someone else’s washing, thus providing a cascading chain of value-adding employment?. The problem is that politicians and their satrap bureaucrats have broken the chain by promising that in exchange for us electing and supporting them,  no one will need to do the most menial and lowly jobs in the chain. They will, they say, “redistribute” the wealth from those so obviously undeserving at the top of the chain to the hordes at the bottom. However the plan doesn’t work for long. Or even at all.

This is a message that has not apparently been grasped by someone who is now always referred to as “the billionaire businessman”. This is Comrade Cyril Ramaphosa, who has just been chosen by the ruling party to be the nation’s next deputy president. To demonstrate his struggle credentials and to cover his embarrassment at holding a seat on the board of the deeply troubled Lonmin platinum mining company, he has offered some alarming ideas about redistribution. His thinks that in addition to paying workers a salary, employers have an obligation to ensure that their employees enjoy some unspecified minimum standard of living. Some of the implications of this view are that it patronisingly suggests that employees make flawed choices when spending their salary. It also says that the salaries are inadequate and so commits each company to a quite unknowable extra cost and duty to help that employee attain and then maintain the desired standard. There is no denying that far too many people in this relatively wealthy country live in appalling conditions and it is in a politician’s job description that they need regularly and loudly to promise to change this situation. Comrade Cyril’s government has indeed achieved a great deal of success in using taxpayers money to alleviate hardship, but to mug them as shareholders for the same cause seems very wrong.

I am now going to St Helena Island. Napoleon as well as number of Boer prisoners of war died there. So (temporarily) will my ability to see what the markets and politicians are doing. The next Tidemarks will be written only in February.

James Greener

11^th January 2013

CLIFF HAS LEFT THE BUILDING, NOW PLEASE MIND YOUR HEADS

The USA’s financial and political whizz-kids have managed to delay yet again an aggressive attempt to get their government to spend less and tax more. Regardless of the positive impact that might have in reducing the deficit, it was feared the adjustments would plunge the nation over a fiscal cliff and back into recession, After acrimonious and lengthy debate, an 11^th hour decision to replace the plans with a much gentler program unleashed a raging bull market in share prices that lifted our own All Share index to over 40 000 points. Just why this American decision was such good news for company earnings in SA has yet to be explained. But the failure to tackle the deficit in a serious and meaningful way unavoidably brings much closer the moment when the US government total debt will bump up against the so-called Debt Ceiling. This is another event which causes all-night meetings and loud shouting and brinkmanship. But inevitably there will be another last minute decision and the Ceiling will be raised. There actually is no alternative. But the debt remains the elephant in the room.

The fellows in Washington perform these rituals frequently and indeed they can go on doing it almost for ever. Or at least until the folk who are lending the US the money to feed Jumbo become concerned that the interest they are being paid is actually their own money coming straight back to them after passing through the pachyderm.  Normally the scam of getting later investors to fund the returns being enjoyed by those who were earlier to the party is called a Ponzi scheme. But the US government’s version of this game is now so large and self-propelling that no one has the courage to call time-out and say that they no longer wish to play and please can they have all their money back. They know it can’t happen. Simply put, the idea of the USA defaulting on its debt is unthinkable.

And it seems that so is the possibility that a bear market can ever happen again.

At 26.7% the All Share’s performance in 2012 was way better than the long term average of 21% and the best year for returns since 2006. This happened even with the Basic Material sector delivering just 5.4% and was driven largely by the two consumer groups (goods and services) both of which easily exceeded 40% for the year. Even the banks did 35% during 2012.

The government’s threat to get tough with tax advisers is yet another response born out of the completely erroneous belief that taxpayers willingly contribute to the fiscus because they like to see the state spend their money for them. Bureaucrats can’t seem to accept that people pay only as much tax as is necessary to stay out of jail and any advice that costs less than the tax saved is worthwhile.

Amid a welter of foolish self congratulation by people who actually had very little to do with it, about three quarters of last year’s school leavers were told that they had passed the final exams. Here in KZN that translated into 47 newspaper pages of results which immediately triggered the thought: Where on earth are all these kids going to find either further training or employment? The local provincial head of education seized on the improvement in pass rate as an excuse to “throw a big party” but one wonders who would be invited as none of the teachers or pupils that I know seem to have been. I do know who will pay, however. I hope but doubt that any political decision-makers are as worried as I am by that very long list of names and the huge difficulties most of them will face in order to fulfil their potential in the systems we have created for them.

The first test against the Black Caps has just come to a very satisfactory conclusion. One commentator explained that there is only a small pool of blokes in those cold islands from which to pick a team. That’s a pathetic excuse. From the same pool they find a team four men larger that beats everyone at rugby.

James Greener

First Friday of January 2013

PLEASE MR PRESIDENT BE NICE TO OUR BULL MARKET

Now that he has consolidated his position as kleptocrat in chief for the next half dozen years President Zuma has obviously decided to let his true nature show through. He appears to have dispensed with the services of those minders who hitherto have so skilfully managed his “best friends with everyone” persona. Just days after axing suspected enemies from the inner circles JZ has now identified animal lovers as unsuitable role models for people of his race and culture. Given his penchant for draping himself in the skins of rare cats when dancing and praying, this announcement should really come as no surprise.

What was puzzling, however, was his choice of bribes for the rural community where he was speaking on Boxing Day. While undoubtedly useful and welcome, items such as wheelchairs, and lawnmowers are not obviously icons of African culture. The jackpot prize was a 4 room house and a bed which I am sure the lucky winner was much happier with than a beehive grass hut and a rush mat on the floor. In closing proceedings our newly assertive president promised more of the same every December 18^th. Presumably someone had pointed out that dishing out goodies to the poor on the day after Christmas might be construed as a tad colonial and Eurocentric. The President travelled to his next appointment in a German car.

And of course the so called developed lands across the equator are not with out their own lunacies. In the USA there are websites counting down the time to the moment (next Monday apparently) when that country plunges over a fiscal cliff. This deadline – set so long ago when it all seemed an unlikely scenario – will enforce simultaneous tax cuts and spending boosts with possibly dreadful consequences. The simple guess, however, is that nothing much will happen this time either as the world has become quite used to the USA’s large and growing level of debt simply because their currency, the US dollar, is still the only game in town. Unavoidably there will be a day when the ridiculousness of letting one of the world’s greatest debtor nations provide the global currency standard will dawn. It will happen without any warning and very very quickly. Massive fortunes will be made and lost and the rest of us will have to stand on the sidelines and clutch our Krugerrands.

Current amusement in Euro land comes in the form a list of Greek citizens who, it is alleged, could solve that country’s budgetary crisis  at a stroke – if only they were to pay the tax they are thought to owe. The list, it seems, keeps getting lost! And when found again it is a few names shorter. Has no one managed to tap these names into a spread sheet? Is it still a grubby piece of paper bashed out on the office Olivetti many years ago?  Those of us in the real world are only too aware of the dreadful ubiquity of anything in electronic form.  In a heartbeat there are copies everywhere and it becomes impossible to lose. Clearly there is no one in the Athens bureaucracy who has any appetite for making the call to even the first name on that list asking that they pop in to the tax office for a chat. More than plates will get broken.

Have you noticed and been impressed by the sight of the All Share sniffing the 39 500 level in recent days? Undoubtedly the weekend newspapers will have hunted down excitable and quotable analysts who will gladly blather on about reaching 50 000 in 2013. After all, that’s merely 25% away. This very unexcitable old bear is still worried that the earnings that appear to driving this bull market are based on consumer spending which has “leaked” from the government’s capital budget. There really is scant evidence of that long promised and much needed infrastructural spending taking place. And that index? Well, it has been achieved on miniscule volumes. Let’s wait and see if the institutional fund managers come back from the beach in a mood to join the ride or feed the ducks.

Have a really wonderful and safe and prosperous New Year

James Greener

Full Moon December 2012.

NEAP TIDEMARKS

So it turns out that the forecasters of ancient Mexico were no better than today’s analysts at getting the future right. It is bright and sunny here in the nation’s holiday capital and no apocalypse has been evident. Not unless you count the disappointment that has overwhelmed the bulls now that the All Share may have delayed its assault on the 40 000 level. That treat looks as if it has been delayed until the New Year. Another disappointment for both bulls and bears here on the southern tip is that shortly after noon today the Earth reached the position of midsummer and will now begin to tilt the other way. That means that the hours of sunlight in each day will begin to decline as we slide downhill all the way to winter again. Very sad.

So now we know where Manguang is if not what it was for. In the words of Shakespeare’s Macbeth : “It is a tale. Told by an idiot, full of sound and fury. Signifying nothing”.  Surprisingly for one who normally wants everybody to be his friend, Jacob Zuma took note of who backed the wrong horse and indulged in a spot of vigorous reshuffling of his pack. The discards probably have little to worry about, however, because many of the replacements also have copybooks which are far from blot-free. One does not remain a pariah for long in politics especially if you can deliver a constituency of malleable voters. Will readers of my age please explain to their younger colleagues about nib pens, ink wells and copy books filled with rows of “pot hooks” displaying the desirable characteristics of “thin up and thick down”. Perhaps a word or two about blots and blotting paper will also be enlightening. Hopefully it will not be necessary also to explain who Shakespeare was.

It remains to be seen if shoehorning a highly successful billionaire into a cabinet of communists will cause a reappraisal of the rapid, alarming and soon to be unsustainable policy of entitlement. The wealthy gent in question has already  instructed his people to take a good look at any possible conflict of interests  and them presumably to act speedily to arrange the ex-trade unionist’s affairs so as not to trouble the tax man too much. There’s no point in letting the government white-ant your nest egg even if you are that government.

Despite being told what to watch for in the slog and scatter form of pyjama cricket I still find it hard to take the results too seriously, especially when we lose.  I am also baffled by yet another crisis which has just broken out at Cricket SA. It involves the SABC and money and therefore sounds pretty hard to fix. Us armchair umpires have little idea what goes on behind the scenes so we can watch the game on the small screen at home where the fridge is close at hand and the seats are much more comfortable. I suppose we ought to play our part and actually watch the adverts rather than take the opportunity to go and tend to the braai fire.

Please do have a happy and merry Christmas

All the very best

James Greener

Summer Solstice 2012.

GONGED OUT IN MANGAUNG

Unless there is a fearsome counter-reaction to the latest news from China that their economy is supposedly on the mend, the JSE All Share index will be delivering a total return of around 22% for 2012. This is splendid and certainly unanticipated by most pundits (especially me) this time last year. Obviously the very steep rises in energy costs such as petrol and electricity had a far smaller impact on the wage-earning population than was forecast. Somehow and from somewhere plenty of people found more money to spend on stuff and well-run companies were able to turn this spending into better earnings which resulted in share prices being pushed up. The numbers in that category of spenders obviously swamps those on fixed incomes, who are undoubtedly having a much tougher time.

In conflict with this is a conclusion drawn from the October government cash flow data which show that the deficit is growing larger and faster than expected. The chief cause is a result of revenue (tax) collections being less munificent than forecast. This is not what might be expected if there really is a growing middle class who should be making contributions by way of income tax and VAT. Now monthly data is naturally volatile and National Treasury says that everything is going fine and not to worry. Indeed, the expenditure side is, so far, reasonably on track. However, politicians rarely do anything that will reduce spending and if the deficit worries them they will probably try and fix matters by poking about in the taxation legislation. This morning for example Chamber of Mines felt it necessary to point out that any further tax increases in their industry will be a case of flogging a dead horse. I reckon we are all pretty much taxed out these days.

Given the seemingly haphazard way in which the delegates for the ruling party conference have been selected, their powers are a bit worrying. Not only do they get to pick a party leader who will then be the nation’s (unelected) president, but they apparently will pronounce on all manner of other topics. Like the business strategy for the country’s major utility suppliers. Mind you, anyone who knows anything about telecoms, broadcasting, power generation, railways and harbours have long since been fired or retired so why not ask the delegates in Mangaung how to run a phone or an airport company. The government is now totally in thrall to a centrally planned economy and the “reds under the beds” that the previous lot warned us about are now out in the open, bouncing on the mattress and holding on to the curtains for support. Eventually something will fail.

Amid scenes of simulated amazement and astonishment, the suits in euro land claimed to discover what the rest of us have known for ages. That Greece was bust and that most lenders of money to that government were not going to get much of it back. Reportedly this admission and realisation is a “good thing” and will clear the air and encourage another set of experts to rush in and lend even more to a nation that has become very used to living beyond their means.

The 12th World Toilet Summit here in Durban has passed with very little to show for it. About the sole topic to receive any publicity was the presentation by a local team of a new waterless loo. Unfortunately for them the incessant rain and severe flooding in the province somewhat diluted the message that waterborne sewage is a luxury in places like Africa. Disappointingly there was no final communiqué from the toilet-masters about the correct way to rig a toilet roll – with the loose end on the outside. An opportunity missed.

Unless you are keen on watching golf played in hot and muggy places there is not much sport to catch the eye. The Kings meanwhile have announced their target of finishing in the top four of the SA conference of the Super 15. This is just a clever way of saying they don’t want to come last.

James Greener

14^th December 2012.