AN AWARD CEREMONY WE ALL MISSED

The rather spectacular collapse in the price of Bitcoin has had some interesting repercussions on the value of other securities which also depend a lot on being worth what their originators and custodians say they are. As the Steinhof debacle shows, the valuation of even ordinary shares depends upon the trustworthiness and honesty of the people who run the businesses and more importantly in the ability and professional integrity of those we expect to audit them. The view that a Krugerrand in the hand is worth more than a dematerialised share certificate in a central share depository is certainly archaic and the JSE has a proud record of converting to a paperless securities market with minimal glitches. However, nothing is really risk free and it’s important to recognise that and price it accordingly. With the almost 10% pull-back in many share markets experienced this week, breathless commentators have been calculating gleefully how much the vile capitalists have lost. Unfortunately for their narrative, the bounce back suggests that those capitalists just added to their holdings at the lower prices

One of the difficulties for believers in free markets is the presence in high office of people who think they know what the price of everything and especially money, should be. These central bankers (for it is primarily, they) fiddle incessantly with interest rates, adjusting them up or down in tiny increments, in the hope that the gigantic economies they think they command will respond appropriately. The very simple fact that we still experience periods of boom and bust, shows that either their measures are largely ineffective or else they don’t know what they are doing. If all the expert advice was just that, shouldn’t we all be educated, employed and content?

Astonishingly, there is a monthly periodical named Central Banking (what else?) which is apparently essential reading for the sort of people who wear a suit AND tie (or smart frock) to work. This is the journal that has declared our very own SARB Governor Lesetja Kganyago to be “Governor of the Year”. An accolade of which he must be very proud. But it doesn’t explain why citizens are being warned to expect very serious tax hikes in the forthcoming budget. Obviously taxing the proletariat into perdition is not a bad thing in Central Banking circles.

 It should be admitted that experiments with letting the markets set prices have not all worked. Often, powerful players (e.g. individual traders with dozy and greedy managers) contrive to operate a cartel and move prices to their own advantage. [viz. The LIBOR scandal!] This is a failure of the supervisors and regulators to exercise their powers with sufficient scepticism and diligence, not of the market.

The only people to be disappointed by the postponement of Number One’s  State of the Nation speech are those who have been taking their credit cards for strenuous outings around the malls. SONA has grown into a lavish social event for the P-list[1] celebrities to display their trappings earned as servants of the people. This gathering in parliament has during JZ’s term revealed little except sycophantic adulation of the benefactor of most of the cast. The real story in the postponement is that, to no one’s surprise (well maybe a few), having two different people as presidents of the ruling party and nation respectively is not working. JZ reportedly has agreed to an early departure from his post but first he wants to say good bye to some people like his cabinet. Since there are more than 70 of them and each will doubtless be very keen to get assurances about their place in the cash flows this farewell might take some time. Like through to 2019 perhaps, which is anyway the scheduled date for JZ to retire.

My understanding of winter sports appears to be similar to the knowledge the Proteas have of the ODI record at Newlands. Bowling first is as dangerous as putting on skis on with the pointy end backwards. And now that Alistair Coetzee has been asked to return the poisoned chalice to SARU who will they find to give it to next?

James Greener

Friday 9^th February 2018

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[1] Politicians and Pests

TOO MUCH INFORMATION

Someone has definitely prodded the bear and he’s out and about, rolling boulders and uprooting shrubs looking for the value that the equity market valuations promise. President Trump’s holiday on Wall Street is ending and the bill has been slid under the door of the honeymoon suite. US bond yields are at a 4 year high. Commodity prices are pushing higher. There is some evidence of a mistrust of “synthetic” instruments. These are the sometimes-complicated securities manufactured by the propeller heads to amplify the modest price moves of the underlying conventional shares or commodities.  Sleep with one eye open, folks.

The ease with which a hitherto unknown outfit like Viceroy can sow widespread doubt about listed companies is very interesting. It’s not unlike what’s happening in the Bitcoin market where in the absence of any recognised method for valuing these intangible beasties, just about any number seems to do. In the case of a listed company like Capitec Bank, however, there are published numbers and common methodologies. Nevertheless, banks are notoriously difficult entities on which to carry out a financial analysis as they can legally (perhaps) shift and rename troves of value and pockets of impairment (a polite term for dud loans) from one reporting period to the next. A few years ago, one of the big four banks sent shareholders an annual report weighing more than kilogram. Plenty of hidey-holes in that document to stash some skeletons.

Whether or not Viceroy have uncovered some moth-eaten donkeys in the Capitec stable of thoroughbreds will emerge for those of us on the outside (customers and shareholders) in due course. In the meantime, the sheriff is charging around firing into the air and threatening insiders with a plot on boot hill. He has little chance of success.

Multichoice, the privately-owned satellite digital broadcast system has told ANN7 that it will from August no longer provide them with a channel. Given the many strange TV stations that it does already broadcast to much of Africa and that this rather suspect and partisan news station is (in a roundabout way) owned by pals of Number One, it is safe to suggest that Multichoice’s decision is not entirely a commercial one.  If the government had only carried out its international obligation two years ago to have in place a publicly owned terrestrial digital broadcast  system,  then ANN7 would now have an alternative method for reaching its meagre audience of cabinet ministers eager to see themselves on TV.

Dismissed or suspended senior staff members at state owned enterprises often challenge their suspension or dismissal with such zeal that it suggests either that they really are not guilty or  that they know how tough it will be no longer to have a highly paid job with opportunities for patronage. Mind you its astonishing how often a dismissed and disgraced cadre, finally deemed unqualified, incompetent or sufficiently corrupt by one branch of government pops up in another. Diplomatic posting as ambassador to a country commercially important to us is a frequent reward.

SARS, the nation’s tax collector, is so desperate for funds that it appears to be on the point of stirring up a whole heap of trouble. It wants to have a close look at whether all the hundreds of churches in the country are being totally honest about their tax affairs. SARS too must have been intrigued by the sight of a humble rural pastor sliding out from behind the wheel of a Lamborghini. The heart of the problem is that religious institutions can apply to be exempted from various taxes and fiddling with that piece of legislation is going to face fierce opposition. Just defining such an institution is a several thousand-year-old problem.

The Proteas were handed a drubbing by India in the first ODI of a lengthy series. We didn’t look too clever in the third test either. It’s a funny game, cricket. This is going to be a tough summer if we have to watch more of this in the coming weeks. Already, however, the captain is telling everyone that he is focussing on the World Cup next year!

James Greener

Friday 2^nd February 2108

LAYERS OF LAWYERS

The regular trek through the thicket of sometimes interesting price charts reveals that although the US share markets are amazingly strong (something President Trump is eager to talk about) the US dollar is not. Indubitably these effects are related and mute the share and commodity price rises for non-dollar players. Who and why are people selling the USD? Is there a real signal here or will it soon get swallowed up as a “correction”?

One of those statistics that sometimes creeps up on you is doing some very interesting creeping. For the first time in ages the value of South Africa’s exports in the past 12 months is very nearly the value of our imports. The general rule of thumb is that importing less than one exports is a good thing and the nation last enjoyed a protracted spell of this pleasant experience around the beginning of the millennium. The kicker in these latest figures is that it is the exports that are rising while imports are static. What a wonderful gift for president in waiting, Cyril Ramaphosa.

A hair-raising view of the future is doing the rounds on the internet. It assures readers that computer software is so rapidly developing and acquiring skills indistinguishable from bright and educated humans that numerous professions are so much under threat that youth are already shying away from becoming lawyers for example. Allegedly “you can get legal advice (so far for more or less basic stuff) within seconds, with 90% accuracy, compared with 70% accuracy by humans. “ 

Fortunately for our local legal eagles there is still a great deal of work in SA which is a long way from being basic stuff. Like keeping large numbers of politicians, bureaucrats and executives of businesses both private and state-owned from getting their just desserts. In fact, Christmas time just never ends for the nation’s lawyers. Meeting rooms in parliament and government buildings are stuffed with probes and commissions and inquiries trying to discover who stole how much from which state bank account. Every second newspaper story tells of a state employee suffering from total memory loss while taking cover behind a costly legal team. Courts around the land are filled with shifty individuals denying everything and awaiting the cue from the begowned barrister to burst into crocodile tears.  But we ought not begrudge our LLBs from earning their living. It has taken years of study and experience to attain their status. And it’s a tough job. Just this week Social Development Minister Bathabile asked counsel to define “a meeting”, presumably to enable her to deny having ever attended one. It seems that, since the unexpected and wholly unscripted defeat of the Zuma faction at the big ANC conference a month ago, the comrades are becoming far less friendly to each other. The phrase “throwing people under a bus” is in danger of becoming overused.

It’s interesting to read that there is a law in Holland which permits investors who have suffered losses presumably due to large share prices declines to try to recover their money from the company in which they had shares. An outfit named The Deminor Group are keen to act on behalf of shareholders in Steinhof. This company’s share price took a big hit when senior executives and board members apparently admitted they had no idea what was happening in the business and furthermore they were not there and it was not them. More “lawyering up” as the saying goes.

Another creeper is the Super Rugby Season which is now nearly upon us. Thankfully it has been trimmed back to 15 teams but still retains the messy “conference” tournament structure. It’s been difficult to give the local teams (Cheetahs & Kings) that were bundled off to the European Pro 14 competition last spring all the attention they deserve. Maybe because it’s not really rugby season. Meanwhile the delightfully described “dead rubber” cricket test series is trying to ignite interest in the final match at The Wanderers. Old Hiltonian Lungi Ngidi is finding the going a little tough as it’s certain that the Indians have told their analysts to scan the data and visuals for chinks in his armour.

James Greener

Friday 26^th January 2018