GONE WEST

A chart of the various JSE sector indices for October so far, resembles a bowl of spaghetti with no emerging trends after the sharp decline last month. Despite the mild panic that broke out last month, it is interesting to note that very few prices have lost more than their gains since April this year. Real bears can wipe out years of work. We have yet to learn if this is a real bear.

Although it is customary to wail about the weak rand, the fact is that our currency is presently at just about its best levels this year against all the major currencies. But not of course against the US dollar which continues to be the beneficiary of some form of “flight to safety”. It’s fair to assume that the dollar’s strength is a consequence of the end of the Federal Reserve’s policy of flooding the market with crisp new notes. In the meantime the foreigner’s cash, after being converted to US dollars, is being loaned to the US government, a conclusion that can be drawn from the rather steep fall in bond yields in that country. Investors now have to be content with a 10 year interest rate of less than 2.25%. It’s hard being a saver in this world.

For some unknown reason, what should be a rather simple and low key mid-year update of the fiscal scorecard has blossomed into a grand event that requires the Finance Minister to buy a new tie and plonk down a 63-page “thud report” (plus annexures) on the parliamentary podium. The main Budget speech is only 4 months away so it seems all quite unnecessary. Only the saddest of economics wonks will wade through this tome which Minister Nene promised was full of strategic frameworks and road maps. The fact is that if the numbers can be trusted, out of every R100 that the government collects it spends about R114. The difference is obviously covered by borrowing and if nothing changes the total debt gets ever larger and people begin to notice and point fingers. The worst fingers belong to the ratings agencies who can at the jab of a keyboard alert the world to what’s going on and cause lenders to be more demanding.

A great deal of airtime and newsprint has been sacrificed on the news that the Minister feels he has no option but to make pips squeak all round. Taxes up and state spending down is the message. Very interesting is the threat to cut off at the knees many of the appallingly run parastatals and even sell off the family silver. The Post Office strike may seem like a picnic when the public service unions get the gist of this one.

Strangely, little seems to be made of the fact that while expenditure is increasing at around 8% pa, the revenue figure is showing almost 11%pa growth, so given time (about 7 years) the gap should close anyway. Presumably real economists have reasons for discarding such a simplistic yet optimistic sum. Nevertheless any attempt to curtail state expenditure – particularly the suspected massive sums lost to corruption and inefficiency -- must be welcomed, and we shall all watch Minister Nene’s new career with interest.

Here in Durban a dozen years ago it was decided that ratepayers, residents and anyone wanting to find their way around the city needed to be punished and seriously inconvenienced for their alleged previous crimes against humanity. The street names of most of the important thoroughfares were changed. While the significance of the new names (like indeed the old ones) is generally unknown to anyone except students of local politics, the nominees probably deserve their recognition. However, a wise authority would have allocated them to new developments and not thrust them onto the existing network. Further, it should be expected that the promoters of the new names will take care to get the details of their heroes correct. But Durban’s main city boulevard now requires yet another set of even longer street signs. Research and custom has revealed that Dr Pixley kaSeme Street should correctly be Dr Pixley ka-Isaka Seme Street. Can’t we just find the old West Street signs? Nobody now recalls if it is named after a local worthy or a merely a compass direction. It really is not offensive and is easy to remember.

I think I can safely wear my Lions cap for the Currie Cup final tomorrow.

James Greener

24^th October 2014

BEARING DOWN

The 8% lost by the JSE All Share index is a good start and already there are some who are impatient to be buying again. Be wary though. This bear is probably not nearly finished with us yet. For the JSE market to return to the sort of valuation levels last observed in 2008 or even 2003, the All Share needs to shed at least a further 30% or so, which would take the index to below 35 000. Bears with longer memories can dredge up even harsher events. The market collapse in the mid 1960s took more than a decade to regain the former levels. That these days the markets are so very different is true but not, of course, a guarantee that the unthinkable could not reoccur.

The US Federal Reserve's program of injecting freshly minted cash into the American economy is drawing to a close. Those who managed to reap the biggest benefits from this process (principally the banks) are naturally downcast. However, the individual consumer in the shopping mall and worker in the office or factory hasn’t enjoyed anywhere near all the upside that the keen promoters of this program had predicted. Wal-Mart, that nation’s biggest employer and shopping chain with a turnover that rivals the SA GDP, was this week busy curtailing employee benefits. The technology revolution is conferring prosperity on far fewer people than expected and for most of the planet, living standards are not improving as the politicians and their economic advisors promised. The declining oil price is a very interesting development, which draws attention to the falling demand for many commodities and the resulting price weaknesses. This isn’t at all what was supposed to happen. Expect more and more strident cries for governments to do something. Unfortunately they probably will.

A group of concerned South Africans feel that Number One is doing a really good job and ought not to be pestered with mundane and trivial issues like arranging payment for the multimillion Rand upgrades to his personal home. Accordingly they are going to make the payment for him. National Treasury must be delighted by this news. Firstly, if the muttering of the uncharitable curmudgeons is true, then a possible source of this largesse could be from the earlier overpayments by the state to gravy train passengers. Secondly, monetary gifts to JZ, or indeed anybody, in excess of R100 000 per annum will attract donations tax at a rate of 20%. The national revenue fund is a winner twice over.

A number of people, including deputy president Ramaphosa, who really should know better, have been talking about starting a “State Bank” which will finance projects and people that they, the politicians, think are worthy causes. This is necessary, they say, because the usual lenders, the banks, are reluctant to take on clients selected by politicians in search of a vote. Most of us, including even the fabulously wealthy deputy president have a preference for getting our money back and we are perfectly entitled not to share his view of who or what represents a worthy cause and a good credit risk. Therefore in order to fund itself before lending to its clients, the proposed State Bank will probably have to resort to extracting money with menaces (i.e. taxation). The major benefit of this technique is that it complexly removes all the messy business of managing a liability portfolio and the obligation to pay anything back to depositors and share and bond holders.

It's just as well I ignored medical advice and watched the bokke beat the All Blacks last weekend. The result of that glorious game was undoubtedly superior medicine. As usual the forthcoming final weekend of scheduled Currie Cup games is always prefaced with a blizzard of conditional clauses. Only those skilled in logic can detail the conditions precedent for a Sharks home semi-final. I think they should have just simply lost fewer games earlier in the competition.

James Greener

Friday 10^th October 2014.

THE RAT CATCHER’S RETURN

This bear is growing up rapidly. Just a couple of weeks old and already he is inflicting some terrible damage and has clawed 7% out of the JSE’s All Share. Furthermore he has brothers who are ripping apart other markets including bonds and commodities both here and overseas. The reasons being offered for this change in attitude by investors are as numerous as they are inventive. A particularly interesting one is the sudden fall from grace of a man who managed the world’s largest bond fund in the US. Somewhat inevitably his market timing luck eventually ran out and the departure of both him and very many investors from that fund is said to be weakening the bond markets globally. Less easy to explain is why the dollar price of gold is weakening so swiftly.

In its current mood the market treats just about every published data point as bearish, no matter that a few weeks ago that same number might have been hailed as wonderful news. Against this trend however was the reaction to the news that almost 61 000 new vehicles were sold last month. Intriguingly rental companies absorbed almost a quarter of them. If they are seeing customer growth why can’t our national airline make money flying people to places to rent those cars?

Probably a number of those new vehicles were minibus taxis being delivered to the Western Cape. In that province fines for traffic related offences, such as unroadworthy vehicles have been raised very substantially. Naturally there has been an outcry about this, with claims that the fines will “cripple” the industry. The method that taxi drivers can use to avoid this painful outcome is obvious. However the news that the province has yet to collect R3bn in unpaid fines suggests that most tickets are utterly ignored anyway.

The slew of data this week included the government’s cash flow numbers which revealed that there is still absolutely no attempt being made to trim expenditure and that out of every R100 the state spends, R17 of that has to be borrowed. While on a personal scale that seems rather uncomfortable, economists have a variety of techniques for disguising this fiscal deficit so that it doesn’t appear all that bad. Great store is put on the fact that the government (unlike the rest of us) has no difficulty repaying loans because if needs be it can simply print the interest and capital money – provided of course they are in rands. Foreign loans are far trickier 

Another data point which was definitely worrisome concerned the so-called trade balance. The good news is that the nation’s appetite for imported goods has stabilised a bit, but the income received for exports has contracted. In aggregate over the past 12 months we received about R187bn less than the imports cost and this figure too is growing steadily. It would be so refreshing if for once politicians joined the dots and noted that their interventions are not working and that it was time to try something different. Like not telling everyone what to do and how to do it.

There are many aspects to the news that Johannesburg wants to introduce owls into areas of their World Class African City to try and control the exploding rat infestation. The first is that the rats must be particularly nasty and unpalatable for if they were not, the owls would long ago have moved in all on their own. Secondly it is disgraceful that the authorities are delinquent in executing this core responsibility of keeping the city clean and free of rubbish. Municipal service is undeniably humdrum and mundane but it is essential which is why the rest of us agree to pay rates and employ someone to do those jobs.

I am so glad I ignored medical advice and watched the final 20 minutes of the Wallaby game last weekend. I’m not sure if there will be an equivalent opportunity to switch on the All Black match tomorrow.

James Greener

World Smile Day 2014

A VERY UNIMPORTANT COMMENT

It’s not just our own poor little runt that is taking a hit. There is a global shift into the US currency. Everyone’s money is losing ground to the US dollar.  The reason for this flight is uncertain. It could even be a sign of approval that the USA is now showing a bit of military might in the Middle East and humanitarian sympathy in West Africa. Adding to our own woes, there is a sprightly and toothy bear at large in the JSE. The average fall this week among the top 20 is almost 5% and this includes horrors like -17% by Kumba, the iron ore miner. Reports of a slowdown in China are being cited as a reason since this would cause a decreased demand for all the minerals that we dig out of the ground to sell to them. All that is really known is that sellers of many shares are starting to queue up and the only way to get to the head of that particular line is to offer a lower price than the current front runner. When that idea catches on we will see a real bear market develop.

Aside from all the usual questions about why so many officials including the president needed to be in New York for yet another pointless talk-fest, the interesting thing to emerge from the furore about the private jet was that it revealed the existence of a sort of Treats Handbook when it comes to flying in chartered aircraft. It seems that there is a caste system for important people, who are classified from being very very, through merely very, down to not very at all. In addition to four suitcases and five coat bags, each VVIP may take 10kg of carry-on luggage, which somewhat explains the need for a muscled bodyguard among the 14 permitted passengers. The boss man gets a private bedroom and en-suite bathroom with a shower on board the plane. Somehow this is not surprising. Everyone on board can expect 4.5kg of food and drink per meal which may not be all that generous after adding the weight of a couple of bottles of Johnny Blue.

Nevertheless all these details merely confirm that we have an obscenely self-important self-indulgent and nearly self-appointed troop of leaders who are rewarding themselves with levels of comfort which greatly exceed the value they provide to their paymasters. A perfect example of this swept the story about the chartered jet into the inside pages when it emerged that the country had been entered into a deal with the Russians for something to do with nuclear power stations. Scant details offered by one side were quickly denied by the other and now the whole affair has been draped with a cloak of secrecy. This immediately confirms that right at the heart of the “deal” there is a price which is egregiously wrong. That almost certainly points to money that will flow in unusual directions. A deeply ironic twist to this tale is that the arrangement which probably involves rands counted in trillions and watts measured in gigas was likely negotiated by a man who battles with numbers that comprise more than about five digits and by a woman who is delightfully unencumbered with any technical training or experience whatsoever. Some commentators are already drawing comparisons with the notorious and still opaque arms deal of almost 20 years ago.

A similar total refusal to reveal the truth concerns the small but heavily used Virginia Airport here in Durban North. Allegedly it is to be closed and moved. Where to? There is still only one runway at the huge new King Shaka facility north of the city.  Undoubtedly someone high up in the municipal structure has plans for an alternative use for the land and the secrecy indicates once again prices will be rigged and money will vanish.

I have only one flagpole and so just before the nerve-racking encounter with the Wallabies tomorrow I shall have a small ceremony to replace the Sharks flag with the ‘bok banner. Once again I am advised not to watch either and so will merely track the scores on Twitter in a quiet room.

James Greener

26^th September 2014.

RATES AND RATINGS

There were several points to take away from Governor Marcus’ appearance in front of the cameras at the end of the monetary policy committee’s meeting yesterday. The most interesting one is speculation about why she has decided to step down after just one five-year term as Reserve Bank Governor. Surely sheer boredom must rate high on the list of reasons. The “no change to the repo rate” announcement came after a three day meeting. It is terrifying to even try to imagine the amount of brain-numbing waffle and data nit-picking that must have taken place in order to fill all that time. Three months ago the same team edged the rate up  a near imperceptible quarter of a percent, but now whatever demons were spotted then appear to have disappeared! Another annoyance in the job might be polite but firm calls late at night from Nkandla or Luthuli House with suggestions of how things should be. The now aborted AngloGold unbundling deal noted that guidance on various matters had been received from the Reserve Bank. And the African Bank debacle must have been very wearying for the governor too. Ms Marcus must hopefully be off to do something far more fun.

It’s getting like a ballroom dance competition but without the spangled frocks. Long and intricate displays of fancy foot work are taking place in order to conceal the real fact that the government plus the large number of its dependant corporations is running ever deeper into debt. The competition judges are the ratings agencies who are already flipping through the score sheets to the “junk status” page and they will any second now be holding those sheets aloft for all to see. That term is misleadingly alarming and harsh. In practice it is simply a warning flag to lenders that in the opinion of the agency (who, by the way, have a blemished record on these matters) the borrowers are battling a little more than most to repay their loans. Actual default is not at all being suggested yet and for the moment SA will undoubtedly behave just like an “investment grade” borrower and continue to pay timely and in full. This is why the downgrade when it comes will be received in Pretoria with outbursts of indignation and contemptuous dismissal. Sadly however, there is no evidence that anyone in charge is going to do anything effective to slow the growing debt and in due course the rating agencies might be proved right. After all as a defaulter we do have form. Remember the “debt standstill” of 35 years ago? In the meantime the government this week managed to borrow $500 million for 5.75 years at a rate of just 3.9%. This is really cheap money and shows that some of the actual lenders are not as concerned about credit risk as the agencies think they should be.

The excited spokesman for the university that will be home to the Thabo Mbeki Presidential Library certainly introduced some different ideas about such facilities. According to him it will become a “living library” that will address knowledge production and peace building. That’s a far cry from a collection of dog-eared Marxist tomes, dodgy medical research papers, yellowing newspaper clippings, fading internet print-outs and used pipe cleaners that many of us would have expected to see in a collection of the previous president’s archives.

Far too much has already been said about that Scottish referendum, but it is interesting to note that a total of about 3.6million people voted. What a lot of noise they made. It must be the whisky. In our election this year 18.6million votes were cast!

Suddenly the Currie Cup competition has reached that stage where we get to play teams we had forgotten all about. The Sharks are making really heavy weather of the whole affair and my back-up Lions flag may come in handy as, ridiculously, we play local rugby right into October. The 2015 Super rugby program has been published and begins only a few weeks after the Christmas tree is taken down. Clearly this sport is now an industry with clamouring stakeholders.

James Greener

National Recycling Day 2014.

THE HEART OF THE MATTER

Perhaps it does not feel like it, but for the past three months the JSE All Share index has trundled along inside a trading range of just 2000 points. This represents a variation of not even 4% of the average level of about 51 000. The JSE has been one of the most docile and pedestrian share markets on the planet. Of course no one knows when or in which direction the breakout will occur and it is unhelpful to state that the event is always getting closer. It is more than 5 years since this index recorded a double digit percentage monthly move. This was in July 2009 when a 10.1% gain occurred. Similar massive gains were also enjoyed in March and May of that year when the market was rebounding from the shock of the credit crunch.

Of course overall indices like this can conceal considerable pain or joy in individual sectors and shares within the market. Owners of mining shares – particularly platinums - have probably suffered the biggest erosion of value in this period. The news that AngloGold is rearranging its affairs has raised uncertainty levels as well. But because these days these companies have a much reduced weighting in the overall picture, their downward impact is easily matched in the calculation of the composite index by much more modest moves elsewhere. By the way, who really believes the AngloGold claim that SA political developments were not a factor in the decision to split the company?

Company results this week were largely rather good but there are still warnings being made that borrowers are not servicing loans as diligently as expected. The earnings of most workers are still too low to meet their aspirations and expectations. This is of course exacerbated by the examples being set by those who demonstrate that dishonesty and deceit are reasonable routes to influence and affluence. Under these pressures saving and providing for the future has scant relevance. Reportedly for example, teachers are resigning in scores in order to access pension savings. We may not have seen the last of the terrifying collapses.

The SABC is calling for proposals for the implementation of “an integrated internal control framework”. Presumably this is autobabble for something that managers should be doing as the main part of their job, but the national broadcaster wants outsiders to come and do it for them. Is this not perfect evidence that the obscenely overpaid, unqualified dodgy chief operating officer is incapable and should go? The problem is that his boss, the chair of the corporation has now also been found out to have lied about her qualifications and so also is not fit for purpose. It really is time that we all boycott the paying of TV licences and press for the privatisation of that sorry mess. It’s a tactic that definitely attracts the government’s attention as the e-toll saga demonstrates.

Perhaps one of the most alarming stories of the week is that the nation’s citrus industry has stopped exporting their produce to Europe. Apparently this avoids the probability of actually being served a permanent ban by the importers because some of the fruit is carrying a harmless but unacceptable black spot blemish. Clearly the industry has a huge problem on their hands and this is one occasion when an informed government intervention might help. However, in the meantime perhaps we could learn to drink Vodka and orange as presumably we must all do our bit and consume the unsold fruit.

The three rugby teams that I wanted to win last weekend all failed. The GP result was disappointing – can someone please develop an engine to beat Mercedes - and even the Bafana result was unimpressive. The cricket was great however, although the victory is being tarnished by numerous articles that point out that sport’s declining support in Australia.

My doctor has forbidden me to mention the All Blacks.

James Greener

Rhodes University Founder’s Day 2014.

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MAIDEN DIVIDENDS?

Thanks probably to the developments in European markets (see below) a somewhat selective bull has returned to the JSE and the All Share index has nosed back over 52 000. The week’s batch of company reports were rather mixed in fortune and outlook suggesting that this is not a tide that is raising all ships equally. Not an easy market to buy. Mind you, it rarely is.

The folk running the finances of Europe are desperately fighting a battle against the wrong enemy. This week they cut interest rates for the euro even further in the near helpless attempt to get the citizens of that awkward and unhappy union to borrow and spend money. For at least  a decade and probably far longer, however, this method for stimulating economies has not been working. It would appear that the category of people who in the past might have been inclined to go into debt and also accept the obligation to repay that debt, currently have little interest in playing that game. Instead their feelings of prosperity and security are being overwhelmed by the impression that their governments are ceaselessly growing pools of self-enriching bureaucrats pursuing policies of entitlement and distribution.

The popular but obviously unsustainable belief that the many can be supported by the efforts of the few may be nearing its long overdue exposure as a lie. Hastening the arrival of this point are the baffling displays of disdain and animosity shown by a very unpleasant cohort of the beneficiaries towards their benefactors and their beliefs, faiths and customs. This disturbing and very unsettling development must surely be a factor in deepening the reluctance of the true wealth creators to play the roles that are being scripted for them by the leaders.

From Washington to Pretoria we are hearing another chorus of howls about how unpatriotic (but note, not illegal) it is for businesses to arrange their affairs to minimise tax. People who feel that citizens need to be “punished” for choosing business practices that maximise the value added simply don’t understand how economies work. A century or two of democracy and civilisation have created way too much legislation and far too many legislators. Growth will come not from tampering with interest rates but by reversing the growth in numbers of tax eaters compared to the number of tax payers. The pruning process needs to start with all those who have assumed the powers of price setting of everything from money to labour, for these are the most lethal and expensive of that group. Surely we now have ample laws on the statute books and need just to enforce them fairly and swiftly? And of course discard those that are needless.

Trying to get his voice heard in the same corridors of power where this week’s non-coup of Lesotho was getting attention was King Buyelekhaya Dalindeyebo of the AbaThembu who fears that his Certificate of Recognition is about to be cancelled. Is there really a department of layabouts who issue these things? Are they like a drivers licence requiring regular renewal after passing a test of sovereignty? What benefits and powers accrue to the holder? Is there a monthly stipend which can be collected by joining the queues of pensioners and mothers on the 1^st of the month? And at the now infamous and salacious reed dance ceremony, another king in the region selected his 16^th wife (a teenager) from the throng of swaying maidens.

The JSE are to be congratulated and admired for yet again nailing down the award for running the best and safest stock market in the world.

 There is something underwhelming about these triangular cricket tournaments – unless and until one’s side is winning I suppose. Beating the Aussies is always good. I am not sure if I have the courage to watch the ‘bokke face the Wallabies in Perth tomorrow. On recent evidence we should do OK as long as we don’t have to scrum, take part in line-outs or pass the ball too often. The Sharks too seem to wobbling a bit of late so perhaps this is not the right time to draw attention to the fact that the Lions are top of the Currie Cup log.

James Greener

5^th September 2014