ISN’T HONEST GOVERNMENT A HUMAN RIGHT?

One report this week suggests that the South African currency is being used as a “safe haven” from the crises that are washing over the rest of the world.  You do have to wonder just how many people affected by developments in, for example, Crimea, have pulled out their school atlas and thought: “South Africa! Now that’s a good place to send my money.” Admittedly the runt has firmed up a tad but if the cash is flowing into the markets those buyers are being choosy about the prices they want to pay. The All Share bounce is fizzling out somewhat and the bull is looking tired.

The great excitement this week concerned a long awaited report about who had ordered and who had paid for all the improvements to President Zuma’s private home in the heart of Zululand. Of course it was us taxpayers who coughed up nearly a quarter of billion rand to upgrade the presidential chicken run and cattle kraal. Actually all of this information was known even before the commendable and fearless Public Protector Miss Thuli Madonsela published her report. The puzzling thing is that the property owner (i.e. Number 1) seems not to have had the slightest curiosity about why his place was overrun with workmen for so long. All he knew is that he wasn’t paying.

By a strange coincidence a quarter of a billion rand was also the income that the toll road operator collected in three months from travellers using the new roads around Joburg. This is only a third of the amount that SANRAL needs to service its massive debts but nevertheless the spokesman thought that bond holders and ratings agencies should be pleased with the news. Well, maybe but also perhaps not. The alarming part of the story, however, is that all those gantries with cute sounding bird names in fact counted traffic flows that should have yielded almost a billion rand in the period. This means that comparatively few motorists are bothering to pay and the operator must have tens of thousands of “customers” who in total owe them about R700m. Wow! This will be a challenge for an organisation which admits that it has made no provision for bad debts.

Given the appalling numbers of people out of work how did The National Union of Metalworkers have sufficient resources and chutzpah to hold a 3 day conference in the middle of a working week to discuss what demands they will be making on employers this year.  One of those employers is the Russian owner of Evraz Highveld Steel & Vanadium who has been mulling the idea of closing the struggling plant. Despite this, the union representatives from that business told their conference that they would be insisting that the average salary for their members should be raised by almost 70 % to R10 000 pm. They are probably soon to learn the meaning of “Nyet”.

Did the promoters of the new law about enforcing gender equality think it through completely?  The legislation allows the state to jail a CEO if he fails to move towards and achieve a quota of 50% women in decision making structures. What if that CEO is a woman? It’s asinine legislation anyway.

So this was the warm-up session for our Autumnal season of low productivity four day weeks. There are three more next month and then in May we defy global practice with the general election scheduled on a Wednesday. That event has been proven to cause huge lethargy and ennui amongst the electorate who will probably need to rest for several days thereafter. Democracy is demanding you know.

I am pleased to report that the Lions are second in the SA Conference log after the Sharks. However the news that SA Rugby is still campaigning for the competition to be enlarged to 18 teams is as disappointing as the gentle purr that the new Formula 1 motors are emitting. Grand Prix is all about noise and atmosphere and to hell with the cost.

James Greener

World Storytelling Day  2014

WHO KICKED THE BEAR?

Whoops. What’s happening here? The All Share has shed nearly 2000 points since this time last week. Bears have been spotted taking an exploratory swing of their claws in many other markets as well.  Is there just the merest hint of panic in the air? Can this be the beginning of the end? Probably not. Buyers are a resilient breed and the temptation to buy shares a few percent cheaper than they  were a week or so ago is hard to resist even if  earning are not going up at nearly the same rate as the prices seem to do. Good news is that the rand price of gold has recovered a year of losses.

Lots of fingers are suddenly being pointed at China where it is suspected that their ongoing demand for the world’s minerals is not as large as it ought to be. As with all data prepared and released by anyone with an agenda it is impossible to separate the facts from the propaganda and it is only when the orders fail to be placed will suppliers know just how bad life is going to be. Anecdotally I can tell you that there seems to have been a marked decline this year in the number of ships waiting in the ocean outside Durban port.

Apparently being without electricity for a couple of hours isn’t very serious. Minister Gordhan described it as “an ankle kick”. Leaving aside the fact that some ankle kickers can leave quite a lot more than a nasty bruise, it should be appreciated that we domestic retail and office consumers are being inconvenienced only after many of the really large industrial customers have been shut down for days and in some cases years. Simply put, even if a dodgy supplier sends a load of duff wet rocks labelled “Coal” round to the power station now and then, Eskom just does not own enough generator capacity to meet the real unrestrained demand that this industrialised country desperately needs. It doesn’t help that former US vice-president Al Gore has been down here for a beer and a braai and of course waffled about renewable energy sources – his pet topic. Our sole dependable source of economically effective power for many years is going to be coal with small and possibly growing contributions from nuclear and gas. In the unlikely event that Africa becomes economically and politically mature and stable, hydro power from the centre of the continent is also a possibility, Wind and sun are ideas to amuse the scientists but wont bother engineers who have demanding customers.

The government took time off from compiling their electoral list of unappealing, woefully ignorant, generally untalented and frequently corrupt buddies to push through another piece of dreadfully inimical mining legislation. The argument of who wins and who loses will rage on but once again, grappling with government interference diverts energy away from doing what is already a very high risk business of exploring and exploiting minerals. The minister was pleased to tell parliament that investors she had addressed recently had accepted the reasons for the new legislation. It turns out however that she was speaking in Canada at the time.

I would have thought that compressed natural gas is a fairly inflammable commodity and not something you want leaking out at a motor vehicle accident scene. Nonetheless some entrepreneurs are setting out to convince a large number of minibus taxi owners to convert their vehicles to run on the stuff, and have already commissioned a service station to sell it. The major attraction is the price of the fuel which is several rands per litre cheaper than petrol although nowhere in the reports of the venture is there any mention of fuel consumption and engine performance. Taxi drivers are unlikely to want to use any fuel which does not get their fares down the emergency lane at any speed less than 100kph.

Fantastic. Grand Prix season starts this weekend and there are all the new cars and teams to get used to. I can’t however get used to losing to the Aussies at cricket even if it is a ridiculous pyjama game of just 14 overs.. The good news is that there is no rain expected at Centurion for the final game this evening.

James Greener

One day before the Ides of March 2014

DISCRIMINATION CAN BE SPELLED WITH A Z

So the rolling blackouts have resumed. Eskom, who prefer the term “load shedding” has been muttering something about damp coal but it must surely be more than that. However, the prospect of the country having insufficient electricity for everyone all the time has caused great optimism amongst the bulls who have been bidding with ever increasing prices for what some of us think might in fact be lower earnings as a result of the lack of electricity. The All Share index has soared to within a whisker of 48 000, which means it has gained 10 000 points in 8 months. The greatest contributor to this performance has come from the financial sector. Perhaps it is thought that it will be the banks that will make the most money with higher interest rates then.

Related to the Eskom issue is the news that Chancellor House has sold its stake in Hitachi for R50m. It paid just R6m for this holding 8 years ago. That’s a very acceptable capital gain of R44m. Shortly after the investment was made, Hitachi was awarded a major contract in the construction for Eskom of two desperately needed power stations. The contractor has reportedly failed to deliver satisfactory work on time and budget and so perhaps few, if any, dividends were paid in the last few years. The capital profit is therefore very welcome to the investor even if the presumed absence of earnings growth makes it hard to figure out how the valuation of the holding could have soared so dramatically. Readers may not need to be reminded that this investor is the so-called “investment arm” of the ANC. The money after capital gains tax of course will come in very handy with an election coming up. It has not been mentioned if Hitachi are now again looking for a replacement Black Empowerment partner. Surely they can’t afford another one.

Rather quietly and without anyone noticing much, the various global indices that reflect the cost of commodities like food, fuel and minerals are rising quite sharply. Some of this will be due to the softening dollar perhaps but these are very discomforting moves for consumers. After so many years when the inflation monster looked as if it had lost some of its teeth, government policies designed to avert deflation at all costs might just be having some effect.

Mark Zuckerberg, the multi-billionaire developer of Facebook, must be very grateful that he never tried to pursue a career of being a provisional liquidator practitioner in South Africa – assuming of course that he has even heard of either the job or the country. The government department that appoints such people has added another bizarre layer to the supremely racist and sexist criteria that it applies in appointing candidates to these posts. White males will be considered for only every tenth vacancy and then only in alphabetical order. Doubtless numerous real applicants named van der Merwe, van der Walt or even Zille are learning that their country doesn’t want them. It’s a massive tragedy.

Feelings may run a little high at the bowling club this evening when I wear my new Sharks shirt as well as my old Lions cap. This rather despicable display of perfidiousness is going to be impossible to explain and maybe I shall lie low until the weekend is over. Even if the Proteas had lasted for a further 27 balls, we would all have known that a draw was not the result we needed against Australia. And that same night Bafana, the soccer ‘boks, let in 5 goals and scored none versus Brazil. The only good news on the cricket front is the magnificent performance of the under 19 squad who are now the proud holders of the World Cup for that age group. Some of those lads had better keep their cell phones charged and close to themselves as the forthcoming T20 series with the Aussies unfolds. It’s a funny game, cricket.

James Greener

7^th March 2014

BULL TAMPERING

It was quite a week for numbers. The GDP figures for the last three months of 2103 were published on Tuesday followed of course by the 2014 Budget on Wednesday afternoon. There was, however, very little unexpected in this daunting blizzard of statistics, some of which contain only a residue of reliability. For example it is hard to understand why a sector like manufacturing can report such enormous changes in business from one quarter to the next. In 2013 the four quarterly quoted growth figures for this sector were -7.9%, 11.7%, -6.6% and 12.3%. It was this last number, together with an equally puzzling 15.7% from mining which lifted the overall growth to 3.8% for 4Q 2013 that cued murmurs of satisfaction from some commentators. Actually it is a shockingly low number and the country will probably soon wake up to find that those self-important rating agencies have dished out another downgrade. For those of us not actually seated in front of the levers of power, the problem and its solution appear to be very clear. Simply the state is way too large and way too involved in affairs in which it has no skill, experience or business.

This was emphasised by the Budget where the hapless Minister Gordhan finds himself with absolutely no wiggle room. His colleagues have utterly failed to respond to any pleas that they should curb their spending which this year in total is planned to rise by 9% to R1.25trillion. By his own admission the president is unable to grasp such large numbers and seems to hope that the electorate is also hazy on what this means.

Individual items on the expenditure schedule which catch the eye include R178bn for Basic Education from which the nation appears to extract precious little value. The government will pay interest of R115bn on the debts it has incurred by running a deficit for so long. This amount is almost 14% higher than last year and is certain to get far larger in the future because of the continued shortfall between spending and income. This year the state will need to borrow 21 cents for every rand it spends.  Only the most optimistic of us would run our household budgets like that. Expected further interest rate rises and perhaps a ratings downgrade will seriously exacerbate matters for Gordhan.

On the income side of the budget it is fun to note that the total income tax the minister expects to collect from the  287 000 individuals with the highest taxable incomes, exactly matches the  R137bn that the government will distribute to the 15.8 million social grant recipients. At just over 1% of total expenditure this hand-out is probably money well spent and makes a significant difference to many lives. However, this juxtaposition highlights the fragility of the fiscal model. An analysis published in the Budget reveals that for every one of these top bracket individuals who emigrates or falls off the taxman’s list, at least five from the next bracket are needed to replace the lost tax revenue. The country is very low on golden geese.

But, no worries. The market is making us richer. No one can remember what it was that scared us so much in January and brought the bear out to see what all the noise was about. February’s All Share performance will be around 5%. Most of the companies reporting so far this season have delivered reasonable results. The budget was of concern only to the detail geeks. That nice little old lady Janet Yellen at the Fed seems so much friendlier than Helicopter Ben Bernanke. She has made the dollar weaker which means our own rand is looking perky. Party time again.

But now the serious stuff. The third test versus the Aussies at Newlands with the rubber at 1 all. Eish. It is going to be a tough five days. At least on Saturday we get relief from the tension by watching the Lions give the Bulls a rugby lesson.

James Greener

27^th February 2014

DOCTOR WHO?

Whee. The JSE All Share has set a new record high. Well above 47 thousand. Our market has been among the most ebullient on the planet. Buyers are elbowing each other aside in an effort to tempt sellers to accept ever higher prices – especially for gold mining shares. Let’s hope this ends well.

 On Monday a new and curious listing will appear on the JSE Oil and Gas producers board with the name Camac Energy and share code CME. This company is already listed on a small US exchange with the ominous code CAK. Its business is to explore for and develop oil and gas finds in Africa. The chairman and CEO (often a worrying merger) is Dr Kase Lamal, who together with his family seems to have a majority shareholding. Excellent sleuthing by reporters Brummer and Woods of The Mail & Guardian have discovered that Dr Lamal arranged for our very own President Jacob Zuma to receive an honorary doctorate of Humane Letters from the Texas Southern University last year. But perhaps the really alarming part is that the investment managers of the state pension fund have taken a 34% stake in Camac for a total investment of USD 270m. A few quick prods of the calculator keys reveals that if Camac should trade below about 785 cps on Monday the pensioners will already be underwater on that purchase. The rest of us are probably best advised not to touch the thing with a barge pole. Sasol is just so much better in that sector.

Unsurprisingly the national airline has again pitched up at everyone’s front gate demanding money. They complain that one reason why they are broke is that government tells them which routes to fly and these includes spots to which no one except bureaucrats and politicians want to go. Further concern for the taxpayers about the situation lurks in the chairman’s claim that it should be recognised “…that SAA was turning its business around with a history of nothing and an empty balance sheet.” This remark clashed somewhat with the wonderful collection of historic pictures of earlier planes in the SAA fleet that is doing the rounds as well as with the hope that the balance sheet, while very unhealthy, should at least acknowledge the debts to the fiscus of many billions. And to show that the managers at the state airline seem to know as little about flying as the managers at the SABC know about broadcasting, came the proposal for a reduction in flying hours required before admission to the cockpit. This is not as scary as it sounds and merely proposes that the trainee occupy a sort of jump seat behind the real pilot to see how things are done. That this would increase flight crew costs by almost 50% was not discussed.

Minister Gordhan delivers the 2014 Budget speech next week. He has yet to find a way to fill the deficit caused by the slump in revenue following the 2008/9 recession. There’s scant hope that he will get any help from his colleagues, all of whom certainly have made plans to spend even more of our money in the next year than ever before. We can therefore reasonably expect him to announce increases in effective tax rates and imposts. He may even have found something new to tax. How about oxygen? He’s got one for carbon already.

 The pre-election rhetoric is full of assurances that the state’s program of allocating resources using political criteria has been a great success and will therefore be enlarged and more vigorously enforced. It is a great mystery that all those who are determined to fix the world don’t pause for a moment and consider that if it was possible for rules, laws and regulation to fix the world, then it would surely have been accomplished a very long time ago.

The opening Super 15 matches produced very satisfactory results for both the Lions and the Sharks. The groundsman at St George’s Park in Port Elizabeth seems to have prepared a wicket which has somewhat neutralised Mitchell Johnson, the Australian bowler. The rains have arrived in Durban and ended a long spell of very hot weather. It should be a good weekend.

James Greener

21^st February 2014

THE BULL GETS ALL THE VALENTINES

Well that was certainly not the sort of market correction to scare anyone. A mere hiccup, now almost half recovered. We bears are very disappointed. 2014 is supposed to be the year when we can go shopping for great values like we saw half a dozen years ago. Patience is a virtue they say.

Unfortunately this month’s release of employment data was another rather good example of just how difficult it is to obtain reliable data about almost any aspect of the nation’s performance. It is frankly really hard to believe that by the end of last year there were 653 000 more people with jobs that a year earlier. This represents a 4.5% increase in the number of people employed in a period when the same department that publishes these statistics, claims that the working age population rose by just 1.8%. One would have thought that this sort of increase in the number of people earning an income should have helped the retailers report reasonable results for the Christmas season. In fact their numbers published so far are rather disappointing.

The delisting of Palabora, the country’s sole producer of refined copper is yet another milestone in the government’s route towards a complete reconstruction of the mining industry. Just where that route is leading has not been publicly stated but with so many communists in control, complete nationalisation of the nation’s mineral wealth seems a fair assumption. Palamin is not a big company – no more than R6bn market capitalisation -- but its departure further restricts the choice investors have when looking to our markets for exposure to natural resources. There are now only about a dozen listed mining companies on the JSE with a market capitalisation above USD1bn (approx R11bn).  Almost all are either gold or platinum producers. This is a sad situation given how many world class mineral deposits there are within our borders.

The rand has been battling solidly to try and recover some dignity; which is something that definitely was lacking at the much heralded fancy dress bash and banquet that we taxpayers funded so generously in Cape Town this week. The State of the Nation Address is merely an annual version of something the president does all year which is to omit the hard parts and boast about the good ones. For some reason an invitation to go to parliament to witness this exercise in mendacity is THE hot ticket of the summer and an excuse to display very dubious dress sense. Particularly annoying was the faux airline captain’s uniform donned by the minister who has piloted the national airline into the ground.

As well as the inevitable flow of money in unusual (and totally opaque) directions, the other unanswered question is why South Africa needs a “spy satellite”. Who are we spying on?  What are we discovering that a quick peer at Google Earth won’t tell us? Is it yet another piece of the Nkandla security cordon? Ironically no one seems to know where the satellite itself is.  But once they do, how about using it to search the country for youngsters who can bowl or kick or hit a ball accurately? Heavens knows we are in dire need of lots of those.

We shall never know if it would have been better if Captain Graham Smith had elected to bat first at Centurion this week. Maybe this Aussie strategy of strong middle order batting and terrifying left arm pace (with bad moustache) will prevail anyway. At this stage it looks as if the first test will be all over before the first local Super 15 matches kick off. I really don’t like this overlap of major sports. Life is hard enough wondering why if you fall on your bottom on the ice twice you can still win a medal. In the meantime there are some folk participating in the Duzi canoe marathon standing up! As if paddling sitting down isn’t hard enough.

James Greener

Valentine’s Day 2014

LET THE (WINTER) GAMES BEGIN

It’s gone ominously quiet and steady. Even the rand has found some buyers – although it might just be the tourists who have appeared in great numbers delighting in fine dining for less than 10 units per head of their own currency. After a nerve-testing plunge of 6% off  the January  peak the All Share index has scrambled back a little to around 45 000. This was a level it first breached in October, which sort of demonstrates the bounciness being experienced as the market tries to decide if this is the end of the bull or not. Frankly there is little news or data around anywhere that makes one confident that businesses are going to be able to report substantially better earnings than they achieved last year. While this does not automatically mean a sell off – there are not many alternatives to owning a share in a well run company that has a solid customer base – perhaps investors are not going to be prepared to pay more than they did last year and prices might stop going up.

In the meantime our government continues to extend its malign and value-destroying tentacles into the wealth creating private sector. Yet again a minister has told the banks that their money lending practices and policies are all wrong and that a raft of instructions from the government on how to run a bank is on its way. Another minister is busy meddling in the fishing industry while ignoring that part of her job which tries to ensure that whoever is doing the job at least has something to catch. Then the minister in charge of mining stands up on the stage and tells the world that the sector is doing fine – a claim seriously at variance with the facts all around her. And over at the health department, where they are hell-bent of banning liquor advertising, they have moved their sights on to sugar which someone has told them is a very bad thing and ought to be taxed. Do these guys and girls even read the speeches they deliver? If they do then that is surely evidence that they have scant understanding of the content.

This week the government announced that it is looking at the feasibility of selling “social impact bonds” to raise money for projects involving small businesses and job creation. Investors will be repaid with a return that will be calculated on the savings achieved as a result of the project’s success. At the risk of being once again labelled overly bearish, this looks like a poor investment. Similar to the “Green Bonds”, that the mayor of Johannesburg told a conference of global bigwigs gathered in his city, that he is hoping to issue. In my experience any bond that purports to be raising money for a “good cause” is simply expecting investors to accept a lower rate of return than a similar bond without that cachet. This may appeal to some lenders but not this one.

Good news is that the presidential hotline is now resolving 94% of the cases referred to it by members of the public. This is three times higher than it was scoring in 2009 when it was established.  This is undoubtedly commendable news but there are several questions that need answers before getting too excited. Who knew that this facility was still available? What sort of questions is not being answered successfully? Have the difficult questioners just given up? Is the president embarrassed by the rather modest proceeds of Nelson Mandela’s estate when compared to the wealth he has accumulated from the taxpayer? What does the president regard as his greatest achievements while in office?

The Winter Olympics open in Sochi today amidst accusations of corruption, incompetence and being unprepared.  In the end all that needs to happen is that the athletes who have trained for four years are given the facilities and opportunities to deliver their best performance against worthy competitors in front of unbiased and honest judges.  May they have the successes they deserve even if the rest of us can’t see the point of sliding rocks on ice or hurtling into space with planks strapped to our feet. PS. Where exactly is Sochi?

James Greener

Friday 7^th February 2014