REVENUE IS RUBBISHED

It seems as if no one believes that there is any bad news anymore. I do not agree. Yesterday the National Treasury published the June exchequer accounts and the two crucial figures are accelerating away from each other at an ever escalating and hugely alarming rate. Government expenditure is now increasing by around 20% pa while government revenue is growing at well below 8% pa. In the second quarter of the year the state spent R184 billion on, amongst other things, ensuring that ministers made full use of their car allowances. This is R40bn more than was spent by the bureaucrats a year ago. Now add to this the fact that revenue for the same period was a mere R120bn (compared to R136bn last year) and you have the makings of what Mr Charles Dickens described as “misery”.

On a rolling twelve months basis the deficit is a staggering R83bn. A simple, but hopefully, unduly bearish extrapolation of the trends suggests that the annual deficit might be R140bn or almost 7% of GDP. Not only is it clear that the new minister of finance is going to have to put on his big borrowing boots but also that the tax payers are in a very bad way, while the tax eaters are off and flying.

The government is obviously very determined to keep the economy afloat by taking over the job of spending money from the embattled, impoverished and increasingly unemployed citizens. Without a very sharp change to these trends, by year end the state will comprise nearly one third of the South African economy. Capitalism under caution?

The markets, however, are not at all worried. Most commentators are confident that the present bad news was what the smart and prescient investors were already discounting during the March crash. Now the worst is over they say, the worrying can end and it is time to be fully invested.

Money continues to flow in to the country and the rand has had another excellent week. So too, by the way, has the Aussie dollar, so perhaps it is a commodity thing. Long bond yields held reasonably steady and the JSE of course kept on surging. But several heavyweight companies either reported or issued trading statements this week and not one was optimistic. The once mighty Anglo American completed a very poor year by failing to pay any dividends at all. I was pleased to note that inflation is falling quite sharply as this means that savers reluctant to leap into shares can find some modestly positive real interest rates. 

Away from the markets, we were treated to the uniquely South African sight of angry protestors singing and dancing while empting rubbish bins all over the streets. This latter action has the satisfying benefit of irritating and alienating the initially sympathetic but powerless ratepayers who will ultimately bear the costs of it all. It also ensures that there will be plenty of overtime for picking it all up again later. I have been mulling over the idea that every parastatal organisation should publish their total wage and salary bill as well as their head count. I think that a simple average per capita emolument number might be very interesting for everyone. To really spice things up how about including the costs of consultants but excluding their number from the staff lists! I have my doubts about the popular belief that public servants need salaries high enough to prevent them defecting to the private sector. Business will poach anyone who will generate more wealth than their salary.

There’s a huge dilemma here in the kingdom this weekend. The sardines have put in a very belated appearance and so the men in shorts are torn between watching the rugby or hunting fish. It’s a tough decision.

James Greener

31^st July 2009.

PROFIT IS A DIRTY WORD

The All Share Index has peeked above the 24 000 level and only old bears like myself remain deeply suspicious about whether or not the worst is really over. Now, any forecast in this business has just exactly a 50% chance of being wrong and so far my views are proving to be right in that half. My difficulty with this market is that it is only the market which has any good news. Everywhere else there is almost no sign of economic recovery. It is of course true that markets usually run many months before the economy does, but in my view this downturn will be far deeper and much longer than most people hope for and therefore this run is a false start.

In the name of stimulus, governments in many countries have started or are accelerating programs of political allocation of resources. In the USA there are already cries for even more stimuli, because the first dollops of cash – with the notable exception of some smart fellows in Wall Street – have not done the job. Here in SA – despite the amazing strength of the rand indicating that there is a lot of money coming into the country – there is a winter of discontent. Notwithstanding the delight of a small segment of the motor industry which has been meeting the demand for two outrageously expensive and luxurious cars per minister (one per city), workers are understandably sympathetic with the looting, striking and rioting that has been taking place. There is great impatience with the state forever just promising “to listen to all stakeholders” when the problem is clear and obvious and not in need of any further discussion. People would like to have more money. Most of us are even prepared to work for it. But being socialist by nature and suspicious of free markets, the state’s response will surely be to play an even larger role in resource allocation. People who should know better are starting to condemn the idea that profits are important and it might not be long before the term shareholder will be pejorative. Showing good earnings and paying them to anyone other than the taxman or the labour force may be unpopular until growth returns.

Governor Mboweni will have spent much of the week showing his successor, Governor-Elect Marcus around the executive suite at the top of Reserve Bank Towers. Not only is there the boring work-related stuff like a shelf to hold books, a drawer for your pencils, the Rates Up lever and the Rates Down pedal, there is the private lift and en-suite dressing and bathroom to explore. Ever thoughtful, Tito has already arranged for the wardrobes to be adjusted to provide extra hanging space for Gill’s kaftans. Reportedly however, the highlight of the tour was a demonstration of the secret system that alerts the incumbent to the arrival of fresh baked goods in the staff canteen 12 floors below.

When suits begin to squabble amongst themselves and use the word “disrespect”, one can be certain that one bunch must have pocketed incentives that the others thought that they should have shared. SA Cricket’s alleged but clearly unsuitable “boss” says that there is no force big enough to make him change his mind about dropping Wanderers from this summer’s list of venues. Just how much respect does this show for the paying spectators?

Apparently a seismic event has moved New Zealand a little to the left on the globe in the last few days. That means it is now closer to SA. So we don’t want to hear anything about travel fatigue from the All Blacks when they are looking for excuses after the Test in Bloem tomorrow.

James Greener

24^th July 2009.

THE BULL ENJOYS THE COLD SNAP

This week the All Share index soared almost to levels last seen before the March slump and technical signals flared like rockets at an opening ceremony. The bull is showing no mercy towards us cautious pessimists who can’t understand why one should pay more than before for shares in companies whose earnings are going to be lower in the future than they were in the past. Presumably bulls think that they can see beyond the present rather tough times to a period when the economy will recover and jobs and profits will again become plentiful.

I have no doubt that such a recovery will indeed happen one day. But I don’t believe that it is remotely soon or that there is great value on offer at these levels. Of course high liquidity is unappealing in the current tax and inflation environment but so too is the act of buying shares at the wrong price. My approach of taking small bites during periods of weakness – like the March low – remains my recommendation. In my view we are not currently in such a period.

Considerable excitement and plenty of envy is being caused by the quarterly results being published by the Wall Street investment banks. Without a shred of shame or embarrassment they are boasting of the return of massive profits and wheel barrow sized bonuses. This is a clear demonstration of what can be achieved when the taxpayers ply you with bail-out money, buy your toxic assets from you at the wrong price and accept your staff layoff programs. It will surely incense the majority of people in the USA who are still suffering mightily from the collapse in house prices, the disappearance of jobs and the desperate need to pay off debt. Mortgage records indicate that the next season of interest rate resets is about to start and probably another cohort of borrowers will find themselves with higher repayments and less valuable homes. My guess is that the bull will soon start to display the symptoms of bear flu.

The cold spell that reached even our small corner of the southern tip this week caused torrents of hot air to flow. Acres of news print were devoted to reporting speeches that made lavish use of the phrases “We need to …” and “The country must…” Ministers and officials of every stripe were eager to list the remedies for putting the country back on to the road to peace and prosperity. Unfortunately the latest plans seem to take an even stronger line than previously that government is the best and sole agent for getting things going. This requires that even more of the national cake gets eaten by the state, which leaves ever fewer private concerns to bake it. This is even less sustainable than generating the nation’s power with wind mills.

A possibly fake but definitely scary email did the rounds this week warning drivers that traffic cops have adopted a no lee-way policy of enforcement. Broadly one must of course support that program, but the rest of the letter lists the spot fines that will be levied for every infraction and one soon realises that one is looking at a determined revenue collecting program. Presumably the local fellows have seen how the state of California is paying salaries and accounts with IOUs and are very keen to avoid anything like that here. Actually, I think it is a great idea, but only for the plutocrats who spend their days warming parliamentary benches or first class aeroplane seats. The IOUs can be converted to rands when the promises are met and the plans complete!

The sardines never pitched up, the Lions got lost and Brawn were gored by Red Bull. Only Mr Ponting’s face after 5 days provided the week’s cheer.

James Greener

17^th July 2009.

THERE IS NOTHING USEFUL TO SAY ABOUT THE MARKETS

 I was rather startled to see that an outfit called the South African Savings Institute held a shindig this week to declare July to be national savings month. As a bit of a saver myself I could not recall being pestered to join the Institute or to pay a subscription so I wondered who they are. Their website reveals that it has no members at all but it presumably does have staff because there is a board of 14 directors who hopefully direct something. At the launch, held over breakfast somewhere pleasant, the boss man, in support of the apparently novel idea that we should all put away something for a rainy day, offered the view that "Gone are the days of 'I want it all and I want it now", … "Our tune now has to be 'I don't need it all and I don't need it now.' ". This will have sent a chill through the blood of those who are desperately trying to get consumers to borrow and spend us all out of the recession.

Just weeks after the last Scorpion was squashed, the police have released a flock of Hawks. Presumably the phylum change for the name of the elite cops signifies that the government is keen to have these ones flying up in the sky where they can keep an eye on them. The last lot skulked about under rocks and started to sting in all the wrong places. For most of us, the name is irrelevant; we are just desperate to see the baddies get caught. One unexpected downside to efficient policing, however, emerged from a report about the transport difficulties that were experienced during the Confederations Cup. It seems that organisers of these events may not hire anyone with a criminal record, but this resulted in a shortage of taxi drivers. Some of the ones they did use preferred to pioneer their own routes to the stadiums ignoring instructions, road closures and traffic signs.

Construction workers have proudly elevated the country into the big league by going on strike and threatening progress on meeting the deadlines for the World Cup. No less a luminary than an FIFA official noted that strike action before an event like this is an expected and necessary development and dealing with it merely adds to the joys and privileges of playing host to the world’s great sporting occasion. He is of course right and the bid to offer spread on the wages is small enough to be bridged quickly.

I was, however, concerned by the spread between the incomes of members of parliament and those in trades and professions that require rather more training and application than serious sycophancy. Even more annoying is the never ending stream of business and financial advice handed down by these self-important blue-light brigands. The sole experience that most of them have in managing anything is the regular voting for more and better perks, privileges, pay packages and prosecution indemnities for themselves and their cronies. Naturally, the directors of Anglo American managed to find a chairman without having report to the list of candidates so thoughtfully provided by the bureaucrats. Despite the protestations to the contrary about any plan for nationalising the mines, the fact that government thought it should participate in the governance of a mining house is ominous. Those keen on letting the state run anything else should firstly explain how they intend to fix calamities like SABC, Eskom and Telkom.

The previous Springbok coach was fired for winning us the World Cup. Should we not be consistent and fire the present one for beating the Lions? Meanwhile it’s the (other) Lions for the Currie Cup.

James Greener

10^th July 2009.

TAXES HORSES AND BOURSES

The JSE’s All Share Index is grimly hanging on above the 22 000 level. Weary readers will know that I think that it will fail to do so for very much longer. There is almost no evidence to suggest that the earnings of most companies and people – except for politicians and bureaucrats – are going to rise in the coming months. The government’s income stream has slowed up substantially as more people are laid off from work and everyone is spending less on just about everything. Our new minister of finance must be wondering at the amazing timing of his predecessor’s departure.

Recall however, that Minister Gordhan’s previous job was as chief taxman and it appears that he has already been on the line to his old office telling them to squeeze harder. While I was watching the test last week I received an SMS message from SARS reminding me basically that they knew where I lived. Chilling timing.

The alternative route for balancing the books would be to trim the expenditure side but the rate at which it is growing suggests that the genie is out of the bottle. It is alarming and the bond market knows all about it. Rates of long dated bonds are on the up. What better time to scrap some of the more pointless departments like Sport & Recreation, Arts & Culture and the strangely named Ministry for Women, Youth, Children & People with Disabilities. By the way I am puzzled that the name of this last money sink has not provoked howls of outrage at the potential implied similarities of the alleged beneficiaries of this particular area of state control and help.

Obviously the current upsurge in investigations of industries suspected of price collusion is also related to the hope that some hefty fines will help swell the state coffers. I have before wondered why, if after such a practice is discovered and proven then it is not the victimised consumers who get refunded the cash?

Have you seen the awe inspiring fines that can be levied if a cell phone company fails to write down where every one of its customers lives? This piece of onerous and costly administration is supposedly an important weapon in the war against crime. What, I wonder, will happen when it turns out that the intercepted call by the alleged crook was made from a cardboard box that was washed away by the last floods? Regulators are often so far behind the technology curve that their interventions are senseless.

A potentially serious event for the JSE has popped up.It concerns the classification of certain shares as so-called “Inward Listed”. Currently only a handful of counters are so identified but they include BAT, the largest share by market capitalisation. The classification prevents the shares from contributing to any index (easily solved, however) but more importantly places limits on local investors’s holdings. In the past several of our biggest hitters on the JSE moved their primary listings to London and a debate about whether or not they should have been or should now be declared Inward Listed is taking place. Frankly the sensible thing to do is to scrap the classification altogether as it is a nasty and needless aspect of exchange control. I have no doubt that our corner will be fighting this one very hard.

The rather unwelcome cold spell has departed the kingdom at last and that means that the horses will be wearing more than some of the race goers at the Durban July tomorrow. Despite this I shall remain at home with one eye on the TV and one on the sea. I have probably more chance of seeing the sardines appear than of watching memorable rugby.

James Greener

3^rd July 2009.

BLOWING OUR OWN VUVUZELA

I am just a little suspicious about the fact that we very nearly had what must have been FIFA’s dream final for this Confederations Cup. In the event they have managed to get USA into one of the slots and that will do no harm for TV revenues come next year’s World Cup. Provided, of course that by then, the US Dollar has not collapsed.  Only politicians will be surprised at how quickly support for Bafana Bafana grew, when it turned out that when they put their minds to it, the South African team could play entertaining and skilful football and nearly beat some of the world’s best. The enthusiasm and dedication of sports fans has nothing to do with the supposed previous disadvantages the players may have experienced but has everything to do with the team playing well and sometimes even winning. I believe that the level of interest and excitement about hosting the World Cup here next year has surged enormously.

Excitement about the stock market however, is not currently at a similar fever pitch. While the All Share index has recovered from the 20% dip experienced in March, we are reaching half year with levels just about where we started from and that is 30% below the mid-2008 peaks. Those who were hoping that a further stomp on the “rates down” pedal in Governor Mboweni’s suite would help get us out of this no-mans land were disappointed when the widely predicted cut was not made this week. The governor instead complained about the forthcoming 31.3% increase in the price of electricity and that his refusal to submit to the “daylight robbery” of his utility bill had resulted in his home being plunged into chilly darkness.

Some heat but little light was caused when Xstrata  told Anglo American that a merger between the two companies would be a great idea. This has given mining analysts and the government’s minerals and energy department something quite large to fret about. The latter’s assurance that any decision made will “be in the best interests of the country” makes me wonder where the shareholders rank in all this.

I am completely delighted by the claim of the taxi organizations that they regard the routes they ply to be their own valuable intellectual property. Based on this premise they claim that any proposed bus service using the same public roads to transport passengers owes them presumably a royalty. Everyone is hereby informed that my regular Saturday morning route from this house to the bottle store, butcher and then fishing tackle shop is henceforth my intellectual property. Anyone else using this route will be levied a bag of charcoal and a packet of bread rolls.

The national broadcaster has almost completely sunk into a morass of political backbiting and corruption. Few are surprised at this development but perhaps we should show some sympathy for the management at that organization who have had to deal with a spokesman for the Communications Workers Union named Vulture. What were his parents thinking? Another communications story concerns the gentle backpedaling that is going on about the possibility of internet connection costs going down when the new fiber optic cables come into use. The latest excuse is that pirates have caused delays and so increased the costs of bringing the cable onshore just up the coast from here. Once again I feel suspicious that not everyone is telling the truth.

Tomorrow will see the real truth about the Lions and the ‘bokke. Perhaps their coach will also try the strategy of substituting the players who are making the plays.

James Greener

26^th June 2009.

FLAGGING MARKETS

It is rather difficult to get a clear view of the markets down here in the kingdom this week. There is a miasma of tension drifting over the city as the first test between the ‘bokke and the Lions looms. Biltong and beer futures are a sure bet with cane and Coke not far behind.

It will also be hard not to let anticipation of the weekend’s many sporting fixtures dominate this comment.

The effective working week of about three days provided few memorable market movements. One of those strange “insiders-only welcome” close-out events took place and did nothing to reverse what I think is a bearish tone that is starting to tinge most sectors. Another round of reporting season is creeping up on us and a majority of the trading statements are warning that earnings are slowing. The retail sales numbers for April were dire and a lack of exports is keeping pressure on the current account

My doubt about the sustainability of the share price recoveries since March is getting greater.  Even if the news is reporting slower rates of decline in the some statistics like employment and house prices, the numbers are still of course getting worse. Most of the world’s talking heads (with the notable exception of my fellow scientist Chancellor Merkel of Germany) are wittering on about bailouts and rescuing ducks so lame that drowning is the kindest option. Back home about the only  claims for public money seem to be some state run and owned organizations and the investors in one or two spectacular non-investment schemes.  Of course there many organizations which if not exactly asking for the stuff for themselves have a strong opinion about what should be happening to it. Because most of their members are mired in debt, the unions insist that if Governor Mboweni won’t lower interest rates then they would like to choose someone for the job who will. Never short of ideas, the workers’ representatives also went on about regulating and monitoring capital flows and even muttered about the strength of the currency.

Not to be left out of the game of making confusing economic statements, the Cabinet sent Spokesman  Maseko out to the front room to declare that “cabinet is not calling for a reduction in the price of tickets” (to Confederations Cup matches) but that “… ministers believe that tickets should be offered free, especially to young people.”  No definition of young was offered but the ability to enjoy the buzz of a vuvuzela is essential. Mind you, this does demonstrate that the Cabinet has a better grasp than the fellows running SA rugby that seat prices determine match attendances.

The list of things that one may not take to Kings Park tomorrow includes plastic trumpets, weaponry and outdated flags. Vexillological Association secretary Berry in a letter to the papers points out that so far during the Confederations Cup tournament several outdated versions of the Iraqi flag have been on display (that nation is on its third flag in half a dozen years) and that the presence of the All White New Zealanders as antipodean champions has sometimes been marked by the Australian flag. Not to worry Mr. Berry. Bafana Bafana beat them anyway. Go ‘bokke. Go Bafana. Go Button. Go home Proteas.

James Greener

19^th June 2009.