NO CARBON TAX FOR TAXIS

The most noteworthy global market development at the moment is the weakening of the US dollar. Remember how the euro got hammered when it was suspected that a number of euro zone countries were going to renege on their debts? There was a mad rush to flee that currency and get into dollars. USD was every investor’s new best friend and the US was going to lead the world to a better future. The problem is that matters economic have not really improved much in the US. By some measures it may actually be slipping back into the doldrums again.

There was and is no fundamental reason to prefer the dollar over even the euro with its raft of spendthrift socialist governments running deficits. The US deficit is rather chunky as well and flows into the USD have obviously slowed markedly. The fact that gold is again above USD1200 an ounce shows where some of the smart money is going to

Minister Gordhan made a speech this week in which he appeared to acknowledge that taxpayer’s money had indeed been wasted in the past because he assured his audience that in future this would no longer happen. The 5.5 million individual taxpayers of this nation will remain deeply sceptical of this claim.

Among the wasteful expenditure we can’t see any end to soon, is the enormously expensive legal circus that starts off the instant the state (eventually) fires a corrupt and useless senior employee. Despite the departing individual usually tottering out of the door with wads of cash that they were “awarded” for a job badly done, acrimonious litigation seems to follow almost inevitably. Strangely, the taxpayer is often asked to pay costs for both parties.

The legislation that is growing around the mining industry in this country is in a terrible mess. This week Lonmin were told that they could no longer sell some of the stuff they dig out of the ground along with the platinum that they have been mining for decades. It seems that the stuff belongs to some previously unheard of outfit that just happened to have a certain piece of paper on which the ink is still wet. Other mining houses with cash to spend are wondering if SA is the best place to do business. Government interference is a fact of life everywhere, but increasingly the problem here seems to be the inconsistent and arbitrary nature of the regulations.

A similar situation of arbitrary regulation is developing around the Carbon Emissions Tax that will be added to the prices of certain types of new vehicle. While almost no politicians or bureaucrats have any idea what carbon is, they do know that they are supposed to dislike it and prevent it and that sounds like a nice little way to earn a spot of revenue.  However, unlike the compliant and peaceable section of the population who will probably not make too much fuss about the tax when they buy a new family saloon, minibus taxi drivers are a very different breed. They are likely to get excited and might start waving weapons. Therefore it has been decided that those vehicles which do the largest mileage every day probably don’t emit too much of that carbon stuff and so can be exempted.

The infamous “Ministerial Handbook” which provides not only the justification but also the obligation for officials to demand top of the range transport and accommodation will soon be amended. Big expensive cars fitted with blue flashing lights will also be deemed carbon-free.

The squabble between two breweries about whether it was fair to advertise that 660ml of beer was less than 750ml of beer has been settled on the side of sense. My Castle quart is already a bit small for the hot days we get down here. And it is the Natal / Transvaal Currie Cup clash this weekend chaps. That will require a quart (or two).

James Greener

6^th August 2010.

WHO WILL BET ON THE BULL?

The JSE index that tracks just the financial and industrial shares – it omits the mining shares – is almost back to the heady levels of late 2007. Those were the days before sub-prime became a nasty word and banks were trusted to be wise and prudent institutions. Interestingly, the total annual earnings of the shares that comprise that index are also presently at just about the level that they were back then. You may recall that earnings continued to grow modestly for another 12 months or so, but the share prices plunged, eventually bottoming out in early 2009.

The recovery of prices since then has been brisk and exciting but those of us who did not believe that the economic downturn could really be as short-lived as that, failed to participate. Frankly it is even harder now to believe that business is booming, but share market performance in July has been spectacular. The All Share index – which includes the mining sector – will be up almost 10% in the month. Strangely, today’s news that Anglo American has resumed dividend payments has been greeted with some rather substantial selling.

The state is spending an average of R63bn per month; an amount that has been growing at almost 15%pa. The trouble is that we are not getting value for our money. This kind of growth is certainly no longer visible in the construction counters which one might hope would be seeing the promised infrastructural spend. However, the state is an important source of income for much of the country and the leakage of this money through corruption and inefficiency and mispricing is probably substantial. Undoubtedly one can detect some of these flows into several of the consumer oriented sectors.

Furthermore, state income is averaging not even R50bn per month; an amount that has been shrinking as tax receipts have crumbled. Something has got to give. And it is investors who are giving – or rather, lending – to the government to cover this shortfall. So keen are these lenders that their supply of money has outstripped the supply of bonds and yields have been dropping. The bond market has also enjoyed a lovely little bull market. It seems that simply the news that the consumer inflation rate continues to decline steadily has been sufficient to keep investors queuing up to lend their cash to the government. There another serious disconnect here also however. Producer price inflation is soaring fast and is now well into double digits. Presumably that will result in even more pressure on the earnings of our already beleaguered manufacturing sectors? 

Johannesburg’s reputation as a mining camp where a never ending stream of dodgy crooks and shysters ply their trade has endured firmly into the new millennium. A court case is now underway that is trying to find out how and why one of the more colourful and robust recent characters in this parade came to his particularly gruesome and sticky end. The investment community is inevitably linked to this drama as of course large sums of money were seen to have been flowing in unusual directions. Astonishing tales of professional hit men with malfunction weapons and financial analysts who got whacked for asking why balance sheets didn’t balance have been filling the press. It is riveting stuff.

And it is way better than the embarrassment of watching the national rugby team trying to fathom the new rules of the game. The coaches are clearly also baffled by it all. Perhaps SARU have not bought a DVD player and are still waiting for the VCR tapes to review the games. Sadly the incident at the last Formula 1 race where the team on the pit wall chose the winner has diluted my interest in that sport also. So it’s back to women’s beach volley ball and of course there are a lot of excited horses down here in Durban this weekend.

James Greener

30^th July 2010.

WHO WILL BUY OUR RUGBY TEAM?

The notion of applying a stress-test to a bank is wonderfully amusing. What do they do? Give the back wall a nudge with a bulldozer and see if the vaults crack open? Tie the boss to a chair in a cellar and shine light on his face while a shadow in the corner pulls pieces from the balance sheet with pliers. Or maybe it’s all civilised and they just run a computer program with the dials set to 10 sigma and see what happens. But the best part of all is when they find a stressed bank that is “too big to fail” they simply fine it half a billion dollars and go out to a nice dinner with all the trimmings.

My guess is that dinner is also the highlight of the bi-monthly Monetary Policy Committee meetings at the Reserve Bank that take two days to reach a pretty simple conclusion. The latest one this week was that the price of money in South Africa is exactly right and therefore there will be no need to adjust the repo rate. Most people seem to agree with that decision and it has done the share market no harm. In fact the All Share index seems quite likely to get back over 29 000. It started the month at 26 000, so that would be heroic stuff signifying that buyers can see substantial earnings growth ahead. Bears, however, naturally worry that this seems unlikely given what we believe are the signs of a quite severe after-party hangover coming on. Did you see how modest SAB’s results were? What happened to all the beer we were using to lubricate the vuvuzelas?

A very simple but timeous and hopefully reasonably error-free daily statistic is the value of notes and coins in circulation. While this includes the shrapnel that has fallen down the back of the couch and the contents of the numerous brown envelopes being passed around the corridors of power, one might have thought the presence of more than a quarter a million free-spending fans might have shown up in the data. Amazingly it did not. So does this mean that they used their credit cards even when buying a burger? Curious. The exact short term economic benefit from hosting the SWC is definitely unknown. Let’s hope the long term indicators provide a clearer and positive picture

In the US, Governor Bernanke prattled on for ages in front of the politicians, trying to hide his disappointment that all the money he has printed and dropped on the nation so far has failed to do very much for the economy. It must indeed be disheartening trying to work out where all those trillions have gone. Aside from banker’s bonuses that is.

There are distinct signs of delusion in the ‘bok camp these days. Not only do they believe that the coach and selectors are doing a great job, they have also hired someone to tell them what they are worth as a brand. Undoubtedly that was not a cheap exercise and now everyone will be delighted to tell them for free that their brand value is a now whole lot less than before they went touring. Nevertheless they have reportedly brandished this alleged “valuation” in front of their current sponsor to open negotiations for the next contract. Surely anyone seeking sponsorship or charity is actually a price taker? The news that Sasol has politely declined to pay the new asking price, would suggest this is the case. Any more double digit losing margins in the Tri-Nations and I think the green and gold camp may need to review their worth. They might have to settle for Joe’s Pie & Curry Shop offer of a free bunny chow and coke after every match.

James Greener

23^rd July 2010.

FLIGHTS OF FANCY

Market news is dominated by stories of big deals which may or may not be good for present shareholders. MTN seem especially delighted with a transaction that totally entrenches the corrupt and wasteful allocation of resources on political and racial criteria. Rather they should concentrate on selling ever cheaper and better communications and everyone will be benefit. The most interesting thing about the DiData deal is that the share price in the days before its announcement displays no hint of a leak. Company results otherwise are scant but mostly showing modest growth in earnings.

Next week the Governor will stride up to the podium and announce her committee’s decision about the repo interest rate. There is the usual range of expert opinion about what she will say but I am wondering if it will matter all that much for the share market in the medium term. A rate cut will of course see a Pamplona style bull run – short and noisy with a bit of blood and lots of shouting. But it is debatable whether letting the banks get short term funds at 6% rather than 6.5% will actually prompt people to spend more than they have been managing to do already. I get the sense that the nation feels relief and pride that the World Cup went off so well but will now sit and wait for summer and Christmas time before prising open their wallets. That was a long holiday we had. As my mother used to say: “Now is the time for old clothes and porridge”

The delight and astonishment at what we and our leaders managed to achieve has rightfully created a great sense of expectation that it should be possible to continue delivering and improving civic services. Already we have been warned not to expect such visible and swift policing and justice. Why ever not? Where are all those cops and magistrates going?

Now is the time to see the plans that we were promised for putting these stadiums to use. One suggestion in the local paper is that the Moses Basket would be a grand place to hold a wedding. Hmm.  I wonder if they have floated the idea past President Zuma for his fifth wedding. He’s about the only fellow with sufficient family, friends and funds to fill the first fifty rows in the east stand. Some rugby team organizers are rumored to have been receiving tempting offers to try a different patch of grass. But then what happens to Newlands? Or Ellis Park. And where is Mbombela anyway?  In the meantime there is deep sadness at the South African Football Association. Their best friend of the last few years has suddenly disappeared.  He has left behind an in-tray of unanswered mail from SARS and his phone has been switched to voice mail. All they can now do is pass around the report card with “9 out of 10” scribbled across the bottom and dream of glories past.  

The submarine and frigate have departed the waters opposite the stadium but today the sky is full of planes practicing for the Durban Air Show. It is rumoured we might get to see the Gripen trainers. That would be nice. They were almost as expensive for taxpayers as the SWC.

I think that part of the problem for the ‘bokke in Auckland was that it was so dark out on the pitch that they could see the opposition in All Black strip. Were they saving money on electricity? Anyway, the boys in green and gold certainly need to do a whole lot better this weekend to keep the nation’s lights on in the Tri-Nations.

James Greener

16^th July 2010.

SUCKERS FOR PUNISHMENT

Paul the octopus has been perfect in his prediction of the outcome of soccer matches throughout this tournament. This explains why the rock pools down here on the ocean’s edge are suddenly thronged with investors armed with sticks topped with red rubber strips. They are each attempting to capture their own clever cephalopod and dispense with human analysts whose predictions of the future are usually hopeless. Paul and his peers would doubtless have foreseen the 5% rise in many bond and equity markets, including our own, in the first week of July. These omniscient octopi would sensibly have rejected as irrelevant the surging government deficits and put their clients into long dated bonds. In the US the 10 year bond rate has fallen 100bp to 3% in just three months – an epic bull market. In SA the equity market surge has been led by the financial sector where almost every day there is a rumour of someone taking over someone else. In London, where austerity is the new buzz word and consumers are becoming an endangered species, the share market has been the world’s best performer in recent weeks. Even the JSE All Share has regained the 27 000 level with ease. Only something with eight legs would have seen that coming. But surely no one saw the dollar losing 6.5% in a month?  There are just no trends to which one can hitch a portfolio.

Nevertheless, us land bound analysts continue desperately to churn out and interpret the flimsiest of data. For example what should we make of the index, compiled by the SA Chamber of Commerce and Industry, which measures Business Confidence and which increased in June to 84.8 from 82 the previous month? The survey must have polled mainly vuvuzela and flag distributors. Many people, including the President, have not been at work much. The cameras often caught JZ warming a presidential seat in the VIP box at the SWC games after he returned from attending the G20 riots in Toronto. He would also have needed some time off to nip back to Zululand to distribute his coming home mementos to the family. I did see a convoy of trucks, escorted by the blue light brigade, heading up the N2.

News is coming in that the Telkom CEO is to step down immediately. Now that the World Cup is almost over and the free tickets, transportation and tempting tit-bits have come to an end, it is probable that we shall see many more fat cats stepping off the various gravy trains. There no longer is any reason to occupy the corner top floor office and collect all that abuse for not running the business properly. As a local headline asked the day after Durban hosted its last match: “Now What?” Indeed. But to return to the Telkom chap for a moment, he will apparently stay on as a consultant for a few more months. What on earth for? Based on the performance of the company during his tenure, his contribution was probably largely confined to finding the best route to the executive dining room. The new guy should be able to grasp that fairly quickly.

 Many of us also grasped quite quickly this week that we are rather dependant on the internet. Out in the deep sea somewhere a tiny and probably cheap component went phut and a crucial fibre-optic link between SA and the rest of the world stopped working. The alternative lines could not cope and things got badly jammed up. Will the incoming boss at Telkom please make a note that there is almost unlimited demand for reliable bandwidth at the right price.

The Tri-Nations begins tomorrow and it will be great relief to watch rugby after the histrionics of the soccer fields. Mind you, for all their apparent frailty in a contact, those soccer boys are seriously fit. It’s just the rules that need a good going over. Similarly, racing bicycles over cobblestones is also only for the very fit. Time to go and arrange the cushions on the couch.

James Greener

9^th July 2010

GENERAL BANKING NEWS

The talking heads on the TV business channels have been getting very excited about the number of consecutive days that the markets have been down. In the US at times it appeared as if the end of the world was nigh. However, the Dow is now just 12% off the recent peak reached in May, and 30% off the 2007 pre-crises glory days. Here on the JSE the equivalent numbers are 10% and 20%. This is certainly not yet the work of the fierce bear that some commentators have told us to expect. It is entirely possible that markets could fall a lot further. Pretty soon however, we will again reach levels where gentle topping up of portfolios might be a good idea.

Actuaries around the world must be wondering about companies that use assets other than cash to pay pension contributions for their employees. In one case, where a distillery is meeting its obligations with barrels of Scotch whisky, this might just about be OK. Provided, of course, that the pensioners do take a drop now and then. Ford workers, however, are probably worried to see to see their company printing share certificates to send over to the pension fund administrators. I am sure they would still prefer paper with dead presidents’ heads on despite that particular asset’s own shortcomings.

Unfortunately the goodwill surrounding the World Cup appears to be dwindling at about the same rate that the teams and supporters are now going home. Eskom workers are adamant that they need to strike to draw attention to their paltry incomes. The country has already become used to not having reliable power and is indifferent to their complaints. Just as long as the lights remain on for the few remaining matches. The country can, however, be justifiably proud of the way in which it has confirmed its reputation as an excellent venue and host for large events. I do hope that all the police and their vehicles which have appeared in these weeks are not mothballed until next time though. Where on earth did they come from? One small casualty of the event was the English language. A slogan that is plastered on almost everything invites us to “Celebrate Africa’s Humanity”. What does this mean? What ought I be doing? Is this continent more humane than others?

Has General Cele’s private banker has been noticing all these stories about the police chief mislaying wads of cash? She really should nip round and explain to him the benefits of  internet banking, debit cards, ATMs and all the other excellent services which would remove the need for the poor chap to have so much folding money on hand. His accountant will also welcome the improved information flows about his client’s financial activities when it comes to preparing the General’s tax return. Similarly his prospective father-in-law would undoubtedly have been happier if the lobola payment had been transferred directly into his account. Counting tens of thousands of grubby notes is so tiresome. (Is the receipt of lobola a Capital Gains Tax event?) The biggest benefit of all though is that the public would get reassurance that their head of police was not involved in anything shady or suspicious.

Are the clowns that run soccer worried that technology might reveal some dreadful flaw in the way the game is played? Why else do they continue to deny letting the referee have access to technology that would enable him to ensure that the laws are obeyed. Like awarding a score for a ball that crosses the goal line or identifying whether a life threatening injury was really inflicted and deserving of a penalty?

 Wimbledon finals, the start of the Tour de France and yet more soccer await the channel surfers. There is hardly an opportunity to get out and top up the Castle stocks. At least there is still a week before the real stress of the tri-nations begins.

James Greener

2^nd July 2010.

AND THEN THERE WERE SIXTEEN

Politicians in the US have reportedly come up with a raft of new rules and regulations for their banks. These will ensure that there will never again be any crisis or credit crunch. Isn’t that comforting? I wonder if the new rules include any which forbid banks to lend money to people who are unwilling or unable to repay it. That seemed to be a source of much of the trouble last time. Hopefully the fellows who run banks had long ago spotted this and made a note that it was a poor business model.

Governments are usually not well placed to offer advice on how to run things. Here on the southern tip, the state owned and run organisations are hardly in great shape. So bad are they that at least two different teams have been assigned to go and find out what’s wrong with them. Worryingly, the so-called independent team appears itself mostly to be independent of the experience and knowledge to run any successful business while the ministerial team is the one which to date has been in charge of the ailing enterprises. No clear winner there.

After tonight the soccer stadiums in Nelspruit and Polokwane will no longer be required by FIFA and the folk there must be wondering what they should now do with them. Identical problems will soon occur elsewhere. By tonight half of the teams who arrived for the competition will have made use of the international departures hall. However, President Zuma  assured an audience this week that there are plans to fill the seats in these arenas with paying spectators in the years ahead, but forgot to mention what they might be watching. Here in Durban, rather excitable voices have been shouting about how magnificent it would be to host the Olympic Games on the shores of the Indian Ocean. Now it would be nice to harness the vibe and the energy that the world cup has generated and flog off the millions of unsold flags (the Bafana t-shirts have passed their sell-by date) but should we not do the sums first please.

News that the Chinese currency would in future become more flexible was accompanied by film clips showing clerks feeding wads of notes through counting machines. While this demonstrated that without doubt the yuan (or is it he renminbi?) note itself is already quire flexible, the markets dithered about whether this was good or bad news for the prices of anything. Similarly Britain’s emergency budget allowed for the word austerity to be given a good outing and markets bounced around. The sorely needed deficit reduction appears as usual to rely more on raising income than cutting expenditure. No one has the courage to tell voters the truth that amounts paid and promised to state employees, pensioners, welfare recipients and other vote buying entitlements over the last few decades were way too generous and will probably be unsustainable in the new world order.

Nevertheless, the great and good of the G-20 nations have ensured that there are sufficient funds to jet them off to Toronto this weekend. Here, after pretending to be surprised by the presence of the baying protestors – who have also travelled to Canada for the occasion – the delegates will meet behind closed doors to compose grave yet optimistic statements before seeking out lunch. Wisely the new Aussie prime minister feels she has more pressing tasks at home. She is so right.

Provided they have not gone home in sympathy with their soccer colleagues, Italy will meet the ‘bokke in East London tomorrow for what we all hope will be a better game. At least it won’t last 11 hours like that tennis match or 90 minutes without a score like some other game I could mention.

James Greener

25^th June 2010.