SOME DON’T LIKE IT HOT

In a few hours, the hoopla will be over and the chair in the Oval Office will have been adjusted for a much larger frame. Now comes the hard part and the markets will be the first to signal public reaction to how the new president is doing, Keep a very keen eye on that US ten-year bond yield in the coming weeks. If it starts to shoot up the verdict is bad.

Meanwhile back home a rather less sensitive indicator is nevertheless starting to signal that the Zuma government is getting into difficulties. Tax revenues are slowing down sharply.This is a new and very worrying development. The 12-month deficit is approaching R200bn compared to the budgeted R154bn. Those fancy #Feesmustfall hash tags are going to be disappointed.

It’s all turning very messy rather quickly. Most of it is very old news but now the events are being revisited in a sea of confusion, bad grammar and indignant vengeance, all fuelled by the vain expectation that the state might be able to get its hands on some sorely needed cash (see above). More than two dozen years ago, the now very extinct Trust Bank was doing what badly run banks have done through the ages. It was lending money to people who were never going to be capable of paying it back. So when Trust Bank’s inevitable sticky end approached, the government, very mindful that many of the bank’s owners (in itself a messy story) and clients were Nationalist Party supporters, made the foolish and probably illegal decision to launch the infamous “lifeboat”. Taxpayers money was loaned to the ailing bank at a very low rate on the condition that it be used to buy much higher yielding government bonds and other instruments. The capital amount was probably therefore never at risk, but the net interest flow was from the lender (the government) to the borrower (Trust Bank). An interesting early example of negative interest rates.

Just what became of the “lifeboat”, and what its potential recovery value to the state might be has long concerned the curious. In particular, the rash of bank amalgamations that have taken place since those days have complicated the task for at least four investigations into the mystery. The now leaked Public Protector’s is just the latest attempt to follow the money. One investigation even was carried out by a commercial British outfit, who as well as charging a very large upfront fee in pounds, got the new government to agree to pay as much as 10% commission on any “recovered” funds. Fortunately, it seems they recovered nothing, not least because ABSA, which undeniably is a distant descendant of Trust Bank, strenuously insist that they acquired no liabilities arising from that particular wreck. The cold fact is that the money – actually now in today’s terms a rather modest amount – is gone. Yet another memorial to every government’s desire to carry out political allocation of assets.

And now the latest banking mess is just starting to sprout shoots. Following the 2008 financial crisis our regulators were delighted to adopt so-called international best practice which it was claimed would ensure that such things never happened again. FICA was born and box-ticking compliance officers appeared on the scene. Since then there has been no obvious decrease in financial frauds but repositories have been filled with useless certified copies of every document a client could produce (and several they couldn’t!). Sensible prudent organisations had long practiced a far more personal “know your client” policy which was far friendlier and also quite good at spotting risk. Amusingly, however, the FICA axe has recently been wielded to deny banking facilities for a family of Number One’s special friends which the banks claim is dodgy. But no problem.  Friends of the friends may have tracked down a South African banking licence which is for sale and so JZ’s mates may soon be back in the game. Watch that space.

Two puzzles today. What really is happening with AB de Villiers? Will he ever again play for the Proteas? And when will the Aussies grasp that Open doesn’t have to mean no roof on the stadium. Those tennis players are really tough.

James Greener

USA President Trump Inauguration Day 2017

THERE’S THE LIGHT BUT WHERE’S THE TUNNEL?

The main concern in the market about yesterday’s somewhat unexpected weak numbers from Woolworths is that they don’t seem to have been unexpected for some shareholders. The price started falling about a week ago, and so cries of “insider trading” are going up. While the practice is deplorable and in fact illegal, it does happen, and old hands in this business will be spending more time looking for the opportunities created by the price move than in joining the hunt for the perpetrators. The fact is that the deal system records are now so comprehensive that the accounts involved will be swiftly identified. Less swift, however, will be the process that follows. Somehow these thangs are always complicated!

The other fallout from the results is that they are being taken as a sign that most retailers are finding it hard to make money. This is despite the steady stream of other indicators which can in certain lights be taken as showing signs of a recovery. The simplest of these are of course share prices and so far this month some very tidy gains are being chalked up.  The pitfall for the bulls however is that industrial and financial company earnings have been declining and unless a massive turnaround emerges in the December year-end results (for which of course the books are now closed) the headlines will begin to shriek about negative growth. But buyers are known to be able to look far ahead right through noise like that.

And so to the season of university registration and folk who are not yet even students are already looking forward to participating in protests and disruptions. Everyone else particularly taxpayers and other elitist capitalists are very weary of this nonsense and patience has already worn thin. The indignant warrior who converted the money spent by the ANC for their 105^th birthday celebrations into potential university fee payments would be shocked to hear that actually a bus ride to the city, a T-shirt , a large chunk of lurid cake and a stiff drink for several thousand sounds like money well spent. At least it was quickly gone and not supporting an ungrateful innumerate illiterate for months.  

It will be interesting to see how many official delegates we taxpayers will be paying for to attend the snowy talk shop in Davos next week. Whatever else they managed to do there last year, the world’s economic brains-boxes haven’t noticeably improved things for the rest of us since then. With all the hot air that comes out of these gatherings one could almost believe in global warming. This year though some people will leave early – if even to pretend they have cracked the nod to attend the Trump presidential inauguration.

The US president-elect is already very entertaining to watch in action. He is proving to be just as worryingly unconventional as many feared. He shows scant regard for how things “are done in Washington” and is becoming adept at using the internet to speak directly to his audience, bypassing the filtering and interpretation processes of the usual channels. The “main stream media” are livid and pounce on the inevitable mistakes and inconsistencies in his pronouncements. His fans however love it, since it shows that he is a real person! Unfortunately, though he has so far shown no sign of shrinking the size, costs and interventions of government. For a state that has debt of almost $20 trillion one would have hoped that a business man would be doing something about balancing the budget. Maybe in the end, Trump won’t be all that different?

Oh and it seems that Slovakian Maros Kolpak,was a goalkeeper in the second division of the German handball league who managed several years ago to get a European court to allow him to play in Germany after his visa expired. In some convoluted way, this ruling enables the selectors to drop on-form South African born cricketers from the Proteas test side. Really, politicians should get right away from sport. Who are all those suits filling the plush padded seats at Wanderers?  But the good news I am told is that so far this year the ‘bokke have not yet lost a game.

James Greener

Friday 13^th January 2017

HAPPY NEW YEAR

Number One spent a very happy festive season in his Zululand home. There were several occasions when he and his mates were able to don the pelts of endangered species and dance the night away. Even his ex-wife pitched up in the province to make a pointless speech about her current job in Addis Ababa. And undoubtedly, she popped round for a chat with JZ to discuss the idea of a dynastic presidential succession. An unappealing idea for the rest of us.

About the only steady number in the markets at the moment is the demand for US dollars. Owning a few of those appears to be preferable to just about everything else. Even the mysterious Bitcoin which enjoyed a great 2016 has been hammered in the early days of the new year. Puzzled investors (i.e. all of us) can choose from the complete range of available forecasts being confidently issued by the seemingly omniscient. Bull or bear? You choose.

Matric results season is a good time for newspapers. They can fill acres of space with pictures of high achieving candidates, jaw-flapping politicians and in some cases, both together. Although how they persuade the ex-pupils to get dolled up in their school kit again is a mystery. Then there are the words. Words of congratulation, commiseration and platitudes and clichés. In what even one youth group so correctly derided as fruitless expenditure our local municipality paid for an all-night “vigil to pray for positive matric results”. Way too late perhaps? But the real story lies in the dozens of pages of individual grades which starkly highlights the irrelevancy of fussing about mark adjustment and pass rate percentages. More than 150 000 candidates have been told that they are good enough to enter a degree course at a university. This is manifestly false and callous. For most of them the truth will be very different.  

In fact, these enormous numbers also reveal that our national model of making a single minister of education responsible for so many “customers” is doomed to fail. Even splitting by province is no help. Here in KZN more than 1700 schools entered pupils for the school leaving exam and 12% of them had fewer than 10 candidates. Even the most competent CEO on the planet can’t manage that kind of client base, so it is unsurprising the business fails to succeed. It is a big and difficult mess to clean up especially given that many parents are content to pass the buck for educating their offspring onto someone else.

So Exxaro, the listed mining company that supplies a great deal of the coal that Eskom burns to provide our electricity, seems to have become fed up with the government’s efforts to impose a politically based system of asset allocation. Dressed up in a melee of Bs and Es and other jargon the policy seems to promise that ownership is a guaranteed route to wealth. This is not truthful. Only a few enterprises make sufficient money to cover all their costs and then still provide enormous income for the owners. While being a shareholder sounds all sophisticated and clever it may take many years before the flow of profits covers the cost of the shareholding. It does of course help enormously if that cost is paid by someone else – a feature of many of these schemes – but a listing on the JSE for many firms is largely about acquiring a list of people to approach next time you need some cash. The JSE’s mining sector – a particular target of the state for these “transformation” deals – has failed to deliver any return for an investor who has toughed it out for the past 10 years. Individual companies have of course soared and crashed over shorter time scales and there will be smug speculators amongst us but overall it has been a poor industry in which to grow rich as an owner.

National selectors have a hard enough job in picking the best on form sportsmen (and presumably women) for the national sides. Understandably the athletes choose to go where their medium and long term benefits are best. Undeniably it is hard to match overseas salaries. But if the guy is eligible and keen to play why is the task made more complicated by the various rules and regulations because of those choices?  Sad and frustrating. Just what is Kolpak anyway?

James Greener

Friday 6^th January 2017