LARRY STAYS PUT

There are about three dozen shares listed in the mining sectors of the JSE. In their most recent report a third of them declared a loss for the previous 12 months. Not one of the 4 companies who claim to be mining diamonds is making profits and six of the eight listed coal companies are in the red. These facts would appear not to carry any warnings for the unions who are now entering the season of wage demands. In a year’s time then, these statistics are likely to be even worse especially as the government continues to be rather hostile to any company not owned by good friends of the president. Equally alarming is the emergence of the civil servant’s pension fund as a source of funding for some very dodgy business plans. Now it takes many years of study to acquire the actuarial expertise necessary to understand the interplay between employers, employees, retirees, investment returns and inflation but putting pension money into ventures that have scant possibility of repaying sounds like bad news even to a physicist.

Those who are still fretting that Britain has made a big mistake in leaving the EU might take a look at the warnings from some pretty august outfits about the state of many banks inside the community, especially Italy. It’s the same old story about lending money to deadbeats because of who they know and not because they are a decent credit risk. And then there’s the wailing noises from the nations in the bottom right hand corner of the continent who are asking what will happen to their applications to join now that the rich Brits are leaving. Fascinating stuff to watch from here on the warming up southern tip.

Perhaps the most amazing thing about the clinical way in which Britain switches Prime Ministers is the handover of the official residence – 10 Downing Street. Suddenly there was David Cameron and his family on the doorstep waving to the cameras. Amazingly none of the children was tapping out a status update on a cell phone and Mrs C wasn’t clutching a supermarket bag stuffed with still warm pyjamas and half a bottle of milk rescued from the fridge on the way out. Mind you they probably had to leave the milk behind for Larry the cat who, it turns out, is on the permanent staff at No 10 and doesn’t shift digs just because of mere political firestorms. So no sooner had the family shuffled down the street to be taken away into obscurity than the new key holder pitched up with her startled looking husband in tow. After the waving and smiling, the big black door mysteriously swung open and the pair bolted inside. Not even a duffle bag of overnight things in sight. All very classy.

Meanwhile our man JZ was across the channel warming a seat at the Elysee Palace and offering advice and wine tips to the French top man Francois Hollande. For once Hollande might have been pleased to see the shining pated Number One as the touchy subject of how much one can pay for a haircut in Paris was unlikely to come up.

The millions of people around the world who spend a great deal of July watching 200 ridiculously fit men ride bicycles across some incredibly picturesque bits of France all cheered when Chris Froome punched a spectator who was behaving badly. Now Chris is a very nicely brought up lad who went to St John’s in Joburg. He wouldn’t have retaliated like that unless he was sorely provoked. So everyone was outraged when it turned out he was fined 200 Swiss Francs for that laudable exercise in crowd control. Just yesterday unruly spectators caused another incident affecting the race leader. How about reversing the fines process and awarding a bounty payment to a rider who manages to whack a deserving trouble maker? That will keep everyone back from the road and it will add interest for the riders at the back of the peloton as they could weave about trying to get in range of a flag-shaking lout dressed only in underpants.

James Greener

15^th July 2016

SWEATING THE SMALL STUFF

Almost nothing that is happening supposedly in reaction to Britain’s vote to leave the EU was expected by the chattering classes. Certainly not that the next prime minister will be a woman! Nor that USD denominated assets would be the main beneficiary of what is presumably being seen as a flight to safety. The yield on the US 10-year bond is moving steadily lower and the price of gold is moving steadily higher. The first of these trades might unwind spectacularly when the awful reality of who might next get their knees under the desk in the Oval Office starts to dawn. The JSE is more or less unmoved by any or all developments anywhere and as yet there has been no price reaction to the considerable round of earning decreases announced in the past few months.

To a surprising extent, financial and economic analysis use data which are the small differences of large numbers.  Scientists tend to be wary of putting too much faith in this sort of data but our industry happily draws important and sweeping conclusions from information which is statistically not very robust. Undoubtedly if the degree of uncertainty in the source data of economic statistics could be determined and taken into account then the supposed short term trends on which so much bandwidth, airtime and printing ink is spent, will mostly all evaporate. Furthermore, particularly for raw data gathered by state agencies, the numbers relate to periods long past and probably have little bearing on what is happening on day of publication and into the future. A very good example of a data set compromised by the many inherent timing, collection and processing sources of error is also the largest and most scrutinised of them all. The Gross Domestic Product (GDP to its friends) of South Africa is now almost exactly R4 trillion per annum. Allegedly several years of expensive academic study are necessary to understand what this number actually means and represents, but this doesn’t deter anyone else in need of an opinion from pecking away at the keyboard and spreadsheet.

The key metric is of course the rate at which this GDP number changes. Increases are good, decreases are bad. And this week the IMF suggested that SA would see growth of just 0.1% in 2016. Now that is a mighty small difference (about R3bn after removing the (assumed) effect of inflation).  Barely the cost of a new presidential jet and far less than the amount Eskom have asked the taxpayer for in order to make ends meet. But it is positive, and so sighs of relief all round. What nonsense. The sole target is for economic growth which is undeniably and substantially greater than population growth. We need big differences.

There is way too much government happening here on the southern tip. Public sector expenditure is almost a third as large as the nation’s GDP, but is poorly allocated and prioritised. Minister Blade Nzimande has been told that it is not possible to accede any longer to the demands of the “#FeesMustFall” campaign and is muttering about inflation-linked fee increase for university students. This will likely pave the way for another round of protests getting underway as the end of year exam season approaches and students look for something to do other than swotting.

Another instance of small differences of large numbers has been evident this week where stages of 200km in the Tour de France have been won by mere millimetres. Something similar might be happening for the Lions as they edge towards the points needed to secure home games in the Super 18 play-offs.

James Greener

8^th July2016

MOVE ON FOLKS. NOTHING TO SEE HERE

Even a week later, numbers of indignant people in Britain are still battling to come to terms with the stunningly simple process of democracy! It has been enormous fun watching how each opinion, forecast and demand arising from the British referendum has a life of just a few hours before being trashed by facts and developments. Adding to the turmoil was another simple fact that Iceland scored 2 goals while England scored 1 and the rules of soccer are quite clear what that means.

 One of the larger and more enduring of the market reactions to the Brexit incident is our own rand’s strength against sterling. Now trading at below 20 to the pound this is a level not seen in almost a year. It’s a bit of an anomaly since the prices of most other things that overreacted have settled down. The London share market is almost at the year’s high. On the JSE it’s the mining sectors which have enjoyed the best of the year so far, although the All Share has managed just 4.3% total return over the past 6 months.

The Chief Operating Officer at the SABC would appear to have gone off his rocker. He has decided that the staff at the national broadcaster need to be reminded that independence of thought and action is not in their contract. Reportedly he has even suggested that a staff uniform is a distinct possibility just to emphasise that individual creativity has no place in their task of entertaining and instructing the populace. Among his more bizarre rulings is that no images of deeply unhappy citizens burning and destroying stuff may be broadcast, as this might encourage others to emulate this bad behaviour. He might have a point but in this age of the internet and subscription TV, the news of such public displays of dissatisfaction are impossible to stifle. He has declared that he has no idea what is meant by terms like censorship, crisis and revolt. Further he says that despite the sudden resignation of the CEO and others, everyone is always confirming to him that he is doing a terrific job. The SABC’s primary offering appears to be the interchangeable genres of violent soap opera and soccer matches. Even the weather forecast in this time of drought is terrifying. Naturally the savage control of contents has been ordered by the ruling party and perhaps after the local elections are finished, COO Hlaudi Motsoeneng will be lead away to his reward.

Whatever one’s opinion of private schooling, it’s astonishing to consider the growth of that sector in response to the demand from parents who despair of the public system. This week Curro, a listed company operating private schools, bombarded analysts with a volley of astonishing numbers which perhaps inadvertently highlighted just what a problem and opportunities the exploding population is causing for education. Even if Curro does manage to build and find staff for another 400 schools in the next dozen or so years, their pupil numbers will still be fewer than 1% of the country’s school children. And still the government has yet to sweep aside the malign and regressive influence of the teacher trade union and appoint some seriously competent people to drive the urgent need for this country to teach our children to read and do sums.

Brics is a very loose and all but senseless association of five nations (China, Russia, India, Brazil and oh yes, SA) with absolutely nothing in common; except perhaps a determination to squeeze their partners for concessions and a chance to feel behind each other’s couch cushions for lost spare change.  Recently, however, their finance folk hatched a plan to deal with the irritation that the rest of the world don’t rate any of the Brics very highly when it comes to repaying loans. Our fellow’s plan is simple. They will create their very own ratings agency which, presumably, will award everyone a AAA certificate. Job done! Someone get the IMF on the line and ask them to send round the armoured truck stuffed with money. Pronto.

It’s that Saturday when there is so much sport that one needs multiple screens like a bank’s trading room in front of the couch. Fortunately, the Durban July will divert some local attention away from the fact I shall be in my Lions Cap and Sharks shirt for the match I can never lose.

James Greener

Friday 1^st July 2016