IT JUST WILL NOT ADD UP

The more cynical amongst us think that all those who marched around Gauteng to promote their demands for “Economic Freedom” have a fairly narrow definition for the phrase. This would entail the transfer of hard cash into their outstretched hands on the grounds that their undoubtedly penurious and disadvantaged background entitled them to it. It is not meant to be either cruel or flippant to point out that everyone now has the Economic Freedom to participate in any enterprise for which their skills and training fit them. The protestors would get much more sympathy if they directed their anger at those government polices which make it difficult for capital and labour to negotiate without pre-conditions that ignore the supply and demand situation. What ever the well-fed, beret-wearing, t-shirted firebrands on the truck leading the march might proclaim, the bare fact is that there is insufficient wealth in the entire country for everyone’s present demands to be met in full. Eventually one realises that arithmetic is far more powerful than promises. And that is why I worry about the bull market.

One economic freedom that we can all enjoy is to refuse the ruling party’s centenary offer of a limited number of 1 kg commemorative gold medallions priced at almost three times the value of the gold they contain. Whatever your level of veneration for President Jacob Zuma, his stamped profile can not add that much value to a disc of the yellow metal. For those looking for something more portable there are also one ounce coins, bearing celebratory images and text, on offer at R72 600. Compared to Krugerrands trading on the JSE at around R14 000 this is also an outrageous premium despite the enticement of a Certificate of Authenticity signed by the president himself. The selling agent’s breathless marketing claim that the actual trading prices will easily exceed these indicated opening auction prices is dubious. Be warned, the secondary market for these baubles is very very thin.

Maybe the suits in Euro Land have solved the crisis. Or maybe they haven’t. In fact probably all they are trying to do is make it go away until they can retire with their enormous tax-payer guaranteed pensions. The compelling irony is that it is these numerous tax-payer funded guaranteed benefits and entitlements which are a major contributor to the crisis. Another factor is the cost of lawyers whose task it is to trawl through the multi-lingual thesauruses for euphemisms for “broke”, “default” and “dishonest”. As mentioned before, this arithmetic stuff can be so darn inconvenient.

The increasingly impressive Finance Minister Gordhan laid out some undeniable arithmetic facts in the half-time budget speech in Parliament on Tuesday. He does become a little over-excited about the fiction that taxpayers should share his idealism for frequent and copious contributions to Treasury. Nevertheless the fact that the government spends lots more than it collects and therefore has to borrow more and therefore has a bigger interest bill was cogently made. I also liked his plan to claw back money allocated to departments but unspent. If you leave it there it will grow legs. Already, however, his warning about the modesty of next year’s salary rises has been rejected by the unions.

I watched in awe as All Black captain Richie McCaw lifted the Webb Ellis trophy totally without assistance from any politician or official. Our own captains have always been accompanied by a president or two to help them heave the golden trophy into the night air. Richie must be very strong. Presumably Golden Lions captain Josh Strauss will not risk the Samson effect of shaving off his luxuriant but repellent beard before he hoists the Currie Cup at Ellis Park this weekend.

James Greener

28^th October 2011 (and a pox on stores with Christmas decorations up already)

IS THE BULL FEELING DRAINED?

The October recovery has run into trouble with the JSE All Share developing a huge attraction for the 31 000 level these last few days and becoming unwilling to venture elsewhere. In the meantime the rand has sagged badly against all other currencies. There was a bit of cheer in the retail sales growth figures which might be a statistical glitch but equally could be real as all that mislaid government cash seeps into the system via personal pockets.

Plenty of politicians and others who should have known better have, over the years, travelled to Tripoli to shake the Colonel’s hand, give him a hug and enquire about the health of his oil fields and treasury. They must now all be pretty alarmed at what has befallen their friend whose last move was into a storm drain in an unsuccessful attempt to avoid his constituents.  

One of the downsides about being the boss of a country is that you meet some rather unsavoury characters in the course of your job. The sleaziest are often themselves leaders of nations. Our own president seemingly has not yet met a despot he doesn’t like and he is currently entertaining the rather unappealing president of Equatorial Guinea. The two of them were probably sitting side by side on the newly upholstered presidential couch last night watching with growing panic the TV images of angry citizens all over the world venting their fury at the lifestyles and habits of the rich, famous and corrupt. The staff would have been instructed to double-check that the electric fence was properly switched on.

Also going down the drain is any idea of what is happening in the Euro zone. Ratings agencies are dishing out red and yellow cards in all directions. Some talking heads are predicting that Portugal is going to be right behind Greece in telling its creditors a sob story. Share markets disliked the news that France and Germany were bickering about how to launch the lifeboat and it has now been estimated that it should be equipped with about a trillion euros of bailing-out money if everyone is to be saved. No mention, however, of where that money is going to come from, but taxpayers can surely expect a call.

There is still no good economic news coming out of USA but attention there is shifting to the Republican nomination debates. That contest is becoming personal and entertaining but appears to be successful in temporarily diverting people from the fact that they, their cities and their states are rapidly going bust. Back home a similar political beauty pageant is taking shape within the ruling party. One possible candidate expects this campaign to be characterised by “divisions and fast-forming cliques and cabals, pigeon-holing of unsuspecting individuals, innuendo, gossip, back-stabbing, character assassination and even physical assassination”. That pigeon-holing sounds particularly savage.

The atmosphere in the Massmart boardroom is probably verging on the violent too as they wait for the next shot across their bows from the government. Scores of politicians, bureaucrats and labour leaders none of whom have ever run a corner café, let alone a giant retailer, are desperate to impose unique conditions on the firm all because it is now part- owned by Wal-Mart, one of the biggest retailers on the planet. Wouldn’t it be fun to trawl through the Makro customer data base to see which of these interfering idiots buy Johnny Walker Black and plasma TVs at the stores they are threatening?

Reportedly the national grief that would follow an All Black defeat at the World Cup final on Sunday would be sufficiently large that it would sink that island forever. Now we can’t have that as we need to have a worthwhile team to beat from time to time so I wish them well and a memorable victory. A win for the Lions in their semi against Province is more of a problem though.

James Greener

21^st October 2011

WHO READS THE RULE BOOK ANYWAY?

It has been another week that is best described as volatile although some will claim that the bull did show himself at times. Sensibly, Reserve Bank Governor Marcus swiftly shut down any idea that SA would join its new best friend BRIC nations and send money to help Euroland get out of the its current financial embarrassment. More sense too from a senior mining executive who pointed out that nationalising an industry whose raw material is already owned by the state is foolish.

In the last few years a small unit that should be quietly and efficiently collecting the data that the state feels it needs in order to plan effectively has assumed an attitude far beyond its real status. The grandly named Stats SA is run by an erratic but colourful and highly visible civil servant who can be alarmingly belligerent towards anyone who questions his results or publishes competing data. He was so busy protecting his turf that he obviously failed to devote enough time to thinking about the huge census forms that his staff began delivering this week. Why, for example, are there more than a dozen categories of education level? Is there a need for so many income brackets each defined by limits stated to six significant figures? Why don’t they want to know about any bathrooms in the dwelling – surely a much better indication of living standards than the puzzling enumeration of rooms for “multiple-use”? If you have not yet been counted, be warned that there is a near obsession with your parents’ state of health and do, if you can, watch the way in which your full name is recorded without spaces. Note too that interruptions to power and water supplies are of interest to the government only if they persist for more than two days and not if they stopped you watching the cricket. Results of the census are expected in 2013.

By which time I hope someone will have put the Ministry for Women Children and People with Disabilities out of its miserable existence. Surprisingly the atrocious name has yet to attract the attention of the easily offended but the news is that it has attracted only 20% of its intended staff complement. Despite this understaffing the minister concerned claims that all is well. If so, why employ any more?

I am delighted to see the reappearance of that large and beautiful yacht in the advertisements for one of the nation’s bigger financial asset managers. The picture of this luxury craft cleaving the waves with sleek and wealthy people draped around the deck is exciting and suggests that toys like this will become within reach of clients who entrust their savings to the manager. Please remember, however, that the yacht belongs to the managers and not their clients. And while on the topic of asset growth, it is the time of year for glossy catalogues of tempting goodies and the 50 year-old Glenfiddich single malt whisky at R159 000 is clearly priced for government officials and youth league hot-shots. The 40 year-old at R28 900 is interesting. If you put it away for 10 years could you expect it to taste 16%pa better?

Something must be done about these Aussies. Last weekend the Wallabies gave the ‘Bokke a lesson in rugby rule interpretation and then last night their compatriots gave the Proteas a 5 wicket hiding. But at least on the soccer field they will never beat our national team’s slick victory dance routine. Bafana apparently devote a lot more time to rehearsing that dance than practicing goal-scoring because despite achieving only a nil all draw with Sierra Leone, they still put on the dazzling display when in fact it turns out that a goal would have much more useful.

Go Wales and the Golden Lions.

James Greener

14^th October 2011

THE SEAT-BELT LIGHT IS STILL ON

These must be very tough and worrying times for folk whose job it is to monitor the risks of dealers sitting at trading desks. Positions will be soaring from hero to zero and sometimes back again in the space of a few days and even hours. Commentators feel obliged to find a reason for each excursion and are always grateful when some index, statistic or price is published that differs from expectation. Another excellent scapegoat is a man in a suit (rarely a woman) preferably with a beard or glasses assuring the audience that, despite being in charge for many years, the current situation has nothing to do with them and they now have just the remedy to make it all better. Throwing large sacks of money at organisations that have already ill-used the previous delivery of money is a common remedy. A different outcome is very unlikely, however.

One indicator that is not bouncing around and has assumed a steady downward trend is an index of the dollar price of commodities. This might indicate a drying up of demand. Since it is widely assumed that China dominates consumption of these things, it is a reminder to keep a closer eye on other indicators from that country for sign of a cooling off. Contagion will be inevitable colds will be caught which will be considerably worse than the sniffle which has infected one of our noisier youthful socialist mouthpieces. This infection has conveniently caused him to be admitted to hospital instead of attending a disciplinary hearing. Because it is apparently “unethical, immoral and despicable” to enquire further on this unqualified woodworker’s health we have not learned if it was a private or a state hospital which is tending to the patient.  Anyone looking for a “Get Well Soon” card must be sure not to buy a “Sorry You Have Lost Your Job” one that is now selling well in the USA. Desperate times.

Right now the market index is poised about midway between the August low and the May high, both of which are about 8% away. No one knows where it will be at year end or even next week. Bears worry that that many companies are reporting disappointing profit growth and others are unwilling to commit cash to expansion. Growth among businesses that actually add value to raw materials is meagre and far too many resources are being devoted to fulfilling regulatory obligations. My particular favourite is the obligation to demonstrate sustainability – whatever that is. A sustainable mine is an oxymoron. As has been pointed out by many others, the end result of a successful mine is just a hole in the ground. Even paper-shufflers in the money industry are capable of sustaining little more than ignorance and greed. But this has been cause enough for crowds of folk to spend late autumn camping in lower Manhattan on an “Occupy Wall Street” campaign.

It is doubtful if anyone at all understands what is happening in the Euro zone. This week Italy received a downgrade which is financial gobbledegook for “might not be able to repay its debts” Other such pronouncements by the so-called rating agencies, that it should be pointed out have a poor record in these matters, are likely. Earlier this year an exercise to “stress-test” many banks was carried out. Banks were asked to report how much money they had has lent to which borrowers and then an accountant prodded some buttons on the calculator to see what would happen if the borrower went “poof”. Naturally no bank wished to be seen to fail this test and so many probably succumbed to the temptation not to reveal all the skeletons in all the cupboards. This week however, as the Greek mess moved closer to “poof”, bones fell clattering to the floor in several places and it is depositors and shareholders who are now being stress-tested.

Back home our stress peaks at 7am on Sunday when the ‘bokke meet the Wallabies in the quarterfinal. Close to many billions of words have been written about this event so all I can add is “Go Bokke”!

James Greener

7^th October 2011

EMBRACE THE BEAR – HE IS UNCOVERING VALUE

It is both month and quarter end. Neither has been kind to investors. From tonight the wheels at Stats SA start to grind and in about two months time the GDP figure for this period will be revealed. By then the rest of us will be grappling with who knows what other issues including the onset of Christmas. We will have little interest in the Statistician General’s announcement about whether we became richer or poorer in the three months after June. Only the analysts will be attentive because it will provide us with something to talk and write about. Real people already know that it has been a time when most businesses are battling, jobs are scarce, prices are rising and only leaders and their cronies seem to be flush.

Politicians obviously must know things that we mere taxpayers will never be allowed to see. This can be the only reason why a parliament full of them in Germany agreed to send yet more money to the hopelessly bust Greeks when they know full well that their own electorate think it is a very bad idea? And there is our own Minister of Money mumbling about stuffing “a couple of hundred million dollars” into the slotted tins being shaken by the folk whose own tax collectors are unable to do their job. No no. Bad idea. If you and your cabinet colleagues think it is a worth showing support for some dubious and debatable common ideal then go ahead and use your own pension fund. Don’t you dare touch ours. And by the way, “a couple of hundred million dollars” is a great deal of spondulicks

Somewhere down south of here, is a local authority who bask in the charming and evocative name of Hibiscus Coast Municipality. I guess that most of us think of the area as a seaside holiday destination, a wonderful place to retire to or with luck to live in and quite a lot of sugar cane. But there is something big happening down there. They have grand plans to become an aviation centre for the country, for why else would they be calling for tenders for the supply of an aircraft training simulator.  Have the ratepayers been asked about this?

The Department of Labour has been running a large full-colour advertisement reminding businesses in a slightly hectoring tone of an approaching deadline. Owners and managers must yet again devote resources to compiling and submitting a report about some aspect of their firms which you can be sure has nothing to do with enhancing productivity. But the crowning insult for those who employing people and working to cover their tax liabilities, is the large slogan across the panel proclaiming: “Department of Labour, working for you.” Eish!

For a few days I have been experiencing a very annoying intermittent fault on the Telkom line that I use for delivering all the data that I use to pretend that I am a proper stockbroker. My fault report was handled courteously and efficiently and while there is still no sign of improvement – you may receive this letter later than expected – I am reluctant to point out that Telkom has issued a trading statement warning of much lower earnings. With an effective virtual monopoly over large segments of the industry, a fearsome tariff structure  and a seeming tacit government approval to keep the country in the bandwidth dark ages it has been a very disappointing share to own.

That ‘bok performance against Samoa this morning was rather worrying. But the good news is that they need to win only three more matches to become the World Champions. The Lions have further to go to hoist the Currie Cup and the chaps down at the bowling club are suddenly looking rather cocky about the Sharks.

James Greener

30^th September 2011

GIVE THAT BEAR A CASTLE

It is difficult to agree with the Monetary Policy Committee’s apparent view that the economic situation has remained unchanged in the past 10 months. Or that not much is likely to happen in the next two months either. This presumably was the reason why they left the price of the money they lend to the banks (the repo rate) unchanged at 5.5%. Nevertheless, the recent attraction of SA assets to foreigners evaporated overnight and they sold plenty of their holdings of bonds, shares and currency. The runt is now lower against most major currencies than at any time in the past two years but this might cheer up the exporters.

This week’s bear market has been blamed in part on certain influential people overseas cagily admitting that perhaps things are not getting better as quickly as they intended and that maybe it will help if their previously ineffective remedies for the mess are reintroduced with another name. Operation Twist is QE3 seen from a different angle. It will still result in new dollars being printed and lent to the US government to spend. Slowly the causes of the crisis are being admitted. Far too many entitlements and desires have been provided and fulfilled using too much debt granted or assumed by entities which are unable and now increasingly unwilling to repay it. But rectifying this situation by curtailing entitlements, denying desires and letting imprudent lenders take the consequences of their decisions would cut short the careers of politicians and bureaucrats who know nothing else except how to spend other people’s money. So it just won’t happen soon.

There must be some public employees who are competent, honest, not on a year’s sick leave or about to move on to a better job. These are the folk to whom we must be really grateful that some services and systems are delivered and do work. The rest are dreadful. Take the clowns who think that more regulation is needed to reduce the appalling death toll on the country’s roads. Already in place are laws that specify excellent standards for drivers, vehicles, roads and critically, the traffic police. But compliance is minimal, enforcement is patchy and almost any incident can be ameliorated with a bribe. The irony and tragedy of a Minister begging for help from the experienced professionals that her government were eager to ease into early retirement a decade ago is heartbreaking. The meaningless waffle about what will happen in the future instead of present action is infuriating. One clueless bureaucrat has produced some sums that purport to demonstrate that the ruinously unaffordable National Health Initiative will actually save the country money by making everyone well and able to work. Indeed.

One of the few economic statistics that may be reasonably reliable and possibly accurate is the daily announcement by the Reserve Bank of how much money in the form of notes and coins are in circulation. This amount varies monthly and annually in a fairly regular and explicable manner, and the current value of cash in circulation is around R82billion. This includes the coins that have slipped down the back of the couch and are lost forever. To compensate for this attrition as well as to cater for growth and inflation, the total amount in circulation is allowed to increase slowly over time. In the first half of this year the rate at which fresh notes and coins were being issued into circulation was an average of R33m a day. However in the past three months that rate has accelerated sharply to an average about R60m a day. What is happening? Why the sudden need for so much more cash? Would it be naïve and malicious to suggest that corrupt “leakage” of government money is more useful when converted into untraceable folding money and there has been a big increase in this kind of flow.

Can you imagine the dismay and panic in the Wallaby camp now that it almost inevitable that they will have to meet the ‘bokke in the quarter finals?  And to make matters even worse, SA Breweries has just bought an Aussie beer company. When they get home they will have to drink Castle.

James Greener

23^rd September 2011. Vernal Equinox

ANOTHER TRADING STRATEGY GOES UP IN SMOKE

 In the last few weeks the daily range of the All Share index has usually exceeded 600 points and on at least three days reached 1000 points. This is variability with a capital “ouch” and even the most skilled and aware trader will have had some scary moments. Some will have been carried out (see next story). Private investors have wisely kept away from this market although the odd glimmer of value has emerged at some of the low points. Once again most of the recent company reports are of better earnings than last year, but globally and locally the economic indicators are not pointing to an imminent or even modest recovery. Only governments appear to be taking on staff and that is seldom a good idea.

There will be great disappointment among certain traders in the City of London today.  There has been a fellow over at a Swiss bank who could pretty much be relied upon to buy expensive and then sell cheap. This dealing strategy caused several billions of his employer’s money to be lost to other institutions and traders. Eventually his boss noticed the flaw and he has been taken off the desk. What do the folk who claim to run these banks do all day to deserve their huge salaries? Risk mismanagement on a heroic scale. Reportedly the rogue trader in his blog a few days ago noted that he was in need of a miracle. Indeed.

Earlier this year we were proudly informed that SA had joined the big league and was now the S in BRICS. Together with Brazil, Russia, India and China we were an emerging nation to be noticed and respected.  The fun and bravado has been short lived, however. Some of our club have become worried by the big financial problems developing in Euroland and are proposing to wade in there and help. Perhaps by buying bonds. Whoa! Hang on a bit. That’s not how it works. The money is supposed to flow the other way. No one said anything about helping Europeans. We are Africans. It is our hands which are outstretched. Get us out of here.

A large full-colour advertisement promises that for the rather modest sum of R2550, business owners can spend a day being informed about the “… host of new laws and regulations that will force them to change the way they do business, secure data, report, audit, advertise and interact with customers in the next two years.”  Whatever the alleged merits of the new rules, it is likely that they will increase costs and unlikely that they will increase sales. The state is choosing a really poor moment to “punish” the private sector for trying to make a profit. And an especially infuriating aspect of this regulatory urge is that the state’s own institutions seem exempt from them.

No one would deny that wealth is unevenly distributed in most economies and that here in SA it may be particularly skewed. The demand for redistribution is a sure-fire attention getter frequently used by political and labour leaders. Slogans like “Economic Freedom” and “Living Wage” are satisfyingly emotive but hard to define and so the people who lead these campaigns should be asked to sit down quietly and do some arithmetic. Using actual data of the current situation they must specify firstly the processes of their redistribution ideas. And then, critically, prove that the resulting new distribution is capable of providing sufficient tax to fund their beloved socialist agenda of providing pretty much everything for free. But then again politicians are not much good at sums, except if they are counting votes.

The ‘bokke need to win just the next six games to be certain of winning the World Cup. Oh dear. Thank goodness I had a heart upgrade this year. Now just let me check where the Lions are on the Currie Cup points table. Ah yes, still on top.

James Greener

16^th September 2011