MERRY CHRISTMAS

Some much needed rain is falling here on the kingdom’s beachfront territory today. This will drive visitors and locals alike into the malls and shops and in a few weeks it will be announced that a record retail Christmas period has been achieved.  The Reserve Bank’s figures reveal that there is currently about 15% more notes and coins in circulation than a year ago and this is way above inflation so one must conclude that, on average, folk have more spending power in their pockets and purses. Which is a good thing. On some days that bad ol’ recession just vanishes into the haze.

Which is what I am about to do and I hope you have already done. The JSE is closing early to day and next week is open for only two and half days as Tuesday is a holiday. That will  be time enough, however, for the foolhardy to issue their 2012 forecasts.

Have a wonderful, safe and merry Christmas.

James Greener

23^rd December 2011

MELLOW BRIC ROAD

In the ongoing and seemingly limitless confusion about what is happening and more importantly what may happen in the European markets and currencies, the talking heads have seized with relish on the very obvious fall in the price of gold. At last there is a significant number to waffle about and “definitions” of bear markets have been dusted off and draped around the shoulders of the yellow metal. Of course it depends entirely on which currency you are pricing the stuff in and here in SA the fall has really not yet been severe enough to attract the term bear. This is because the rand has sagged a lot in response apparently to some heavy selling of our shares and bonds by non-residents.  For those who feel they don’t have enough insurance coverage against politician stupidity and currency weakness this is a handy dip for some more accumulation.

It is not difficult for bears to find sustenance just about anywhere one looks. My own particular favourite at the moment is the news that all sorts of bubbles may be bursting in China. Reportedly the property market there is plummeting and credit is becoming harder to obtain. One commentator remarks that the “BRICS are falling like bricks” but despite our effective self-nomination and election to this club our markets have not followed suit and the JSE will probably be among the smallest losers of the year. Nevertheless if every Chinaman consumes just one fewer item than the world was hoping for, then producers are in for a less than merry Christmas. Perhaps, however, the news from the USA, still by far the biggest and most important economy, is on balance rather more bullish. Sure, the debts and cut backs in public services at all levels of government continue to provide satisfying stories for us to gloat over. But there are signs that the worst may be over and the less visually challenged bulls claim to have sighted some indicators of returning jobs.

As matters stand, going into the last few days of the year the All Share total return for 2011 is around two and a half percent. This is disappointing and quite liable to be erased (or doubled) in a short burst of now commonplace excitement between lunch and tea on any day between here and Hogmanay. It definitely isn’t the 20% pa that we need to re-establish that wonderful trend that we enjoyed for so long. Equity investing has become defensive and a tad boring. Bonds, however, do seem particularly risky as both interest rates and inflation are edging upwards.

One of the JSE’s big ideas driving their takeover of the Bond Market was to make it more accessible and friendly to individual and small investors. While the merger is now a fact, I am not surprised that the private investor has yet to surge into that market. It was not that long ago that bond yields here were well above 10% and some of us can remember 20% This would destroy a bond portfolio bought at present levels. For the insistent there is a very satisfactory ETF that tracks the government bond index and also be aware of the newish ETF that buys just the so-called inflation linked bonds also issued by the state. Both of these instruments offer almost risk-free (but not necessarily loss-free) investing. In passing, it is amusing to read about the dismay and panic that has followed the news that bond rates in several euro zone nations are now above the allegedly disaster level of 7%!

Some of the earliest of the renamed streets here in Durban are back to their original names following the unearthing of some legal glitch in the original process. Nothing was said about that process being insensitive, unnecessary, costly and stupid. The argument against changing a name from one now unremembered and possibly dubious dignitary to another whose fame is equally mystifying has nothing to do with disrespect for the newcomer but everything to do with continuity and history. Surely the number of roads being created in this ever expanding metropolis far exceeds the number of folk deemed worthy of being remembered by a length of tarmac.

But now it’s time to go and watch some test cricket.

James Greener

Day of Reconciliation 2011.

COP OUT

The residents of Durban poured into the streets last night to gaze in awe at the skies above the International Conference Centre. Hopefully the dramatic fireworks display that was reflected in the tears of pride and appreciation that rolled down the faces of the gathered rate and tax payers marked the end of the COP 17 boondoggle. We were humbled that our leaders were using our money to stage such an appropriate nature-friendly display of extravagance to thank the Parties who had attended the Conference for the 17^th time. Those residents lucky enough to live alongside the roads linking the gritty downtown venue with the luxury hotels of the north coast were able also to see for the last time the weary and exhausted delegates as they were whisked past in their police-escorted, blue-light flashing, traffic-law flouting convoys. Some found comfort in the knowledge that these hard-working servants of the people would soon be in their comfortable sea-facing rooms with well stocked mini-bars and 24-hour room service.

By most accounts it seems that the conference was an outstanding display of hypocrisy and privileged consumption. No document or memorandum that could not have been knocked up by people staying at home and using the internet was published. But lots of folk got to spend several days in Durban (sorry about the weather chaps) practicing very bad science, displaying some astonishing ignorance, arrogance and bad manners. As with all these international gatherings one rarely gets to see a final set of accounts to see if the costs were greater or less than the benefits, but I  do hope that at least some members of the hospitality industry here in Durbs are feeling better off today..

I was extremely fortunate to be out of town for all but the dying moments of the circus, but one excited news item I did see insisted that the gathered throngs had discovered a new and magical business strategy that would bring prosperity and create jobs. It seems that manufacturers and businessmen need only make their products and services eco-friendly and a hitherto untapped community of wealthy and eager customers and clients would be delighted to pay premium prices and drive up sales and profits. And so, to cater for this wonderful new demand, employers would need to throw open their gates and welcome the large numbers of well trained and disciplined workers waiting outside. Who would have guessed?

Equally amazing is that despite some recent heroic intra-day excursions by the market indices, the average investor is merely 10% better off than they were at the 2008 market index peak. Significantly, all of this return has been derived from the dividend portion only. This is why mostly only well-managed, dividend-paying companies remain my choice for investment portfolios.

And why, if the Euro Zone is in such a mess, has the euro currency not completely tanked. In the same way that an excess demand for shares has not emerged in the last few years, no overwhelming supply of euros has swamped the currency markets in the last few months. Puzzling, but it suggests that many people are rather certain that the euro will survive.

It is also puzzling if not very embarrassing for someone that one of the Durban harbour pilot boats managed to miss the enlarged harbour entrance by a country mile and fetch up on the beach after bouncing off some rocks. These are the guys that the big ships are obliged to pay to have on board when entering or leaving port. Fortunately, no one except taxpayers were injured as the damage repair estimated at R1 million was described by the port captain as “minimal”. So not only is the 5 cent coin being withdrawn, the amount of R1m is apparently barely worth mentioning.  Inflation is undoubtedly on the rise.

 Thank goodness that some test cricket is starting again in a few days. It really is the ultimate in sport but let’s hope that the New Year sees the departure if not the arrest of the crooks and thugs who ludicrously are in charge of this and many other sporting codes.

James Greener

11^th December 2011

CARBON COP(Y) 17

Anyone who can offer a view on what is happening in Euro Land and how it will impact the rest of us is going to be wrong within a few hours of making the prediction. The mess is deep, smelly and very unlikely to end well. Perhaps the only good to emerge is that it is revealing to plenty of people that most of their respected and trusted leaders are no more reliable or trustworthy than just about anyone else. Those leaders have the use of the presidential palace, plane and party planner but not much in the way of an idea of what to do except spray public money from a fire hose. And when the hydrant runs dry …..? It is very sad really. From a very simplistic viewpoint the single euro currency seems like a good idea and makes life easier for many of us. But the clever folk who said it was a doomed structure are starting to look as if they were right. But then recall the first sentence.

Most local company earnings continue to show growth and this week just a bank and a construction company unsurprisingly announced against that trend. Nevertheless the simpler valuation models still suggest very few compelling buys in the share market. A number of administrative and technical developments being made by the now all-powerful JSE are intended to make the bond market friendlier for small investors. With the unwarranted but inevitable confusion that will attend next year’s probable implementation of a new way of taxing dividends, bonds might seem like a safe haven. Outright purchases of bonds at these generational low yields are unwise though. However, there are a couple of instruments available for those who are not totally spooked by the thought of collecting taxable interest payments.

So Stats SA has followed my idea of enabling everyone to compute their own inflation rate.  At one memorable analyst meeting many years ago the usual moans of disbelief about the latest official inflation number were being voiced. The company economist was trying to fight his corner and support the data and pointed out to the senior partner that “… the CPI is not based solely on the price of Famous Grouse and aeroplane fuel, you know!” With the new Stats SA tool he can now check that point.

The levels of silliness and breathless excitement are mounting here in Durban as COP 17 approaches. This is not, as the name suggests, a new police series on TV but the next in a sequence of talking shops where hypocrisy trumps science and slogans beat reason.  The future tense will be in great demand and impossible promises will be made. Hoards of lavish-spending tax-funded delegates are eagerly awaited. There are private jet runways and first class lounges and top of the range suites which have remained unused since the World Cup except for the odd visit by local party big-wigs. The War on Carbon demands that its generals fight from the comfortable seats and the kingdom is delighted to provide them. Expect siren-wailing traffic-halting limo cavalcades sliding through red lights en route to deliver delegates to hector audiences about reducing their carbon footprint. Less welcome will be the footprints of the grubby takkie-shod and surprisingly numerous pavement preachers who mysteriously manage to find the price of a ticket to these salubrious and far-flung conference venues. Happily I shall be missing the circus. I shall be in the bush for a while and the tide will leave no marks.

Oh how nice it would be if the planners had remained with the original series of three tests against the Aussies. Two just doesn’t work – especially if we lose the second one.

James Greener

18^th November 2011

ELEVEN ELEVENS ARE ELEVENTY-LEVEN

It was another fine example of how impossible it is to get any consistency from economics. Mind you it does involve two so-called ratings agencies. These are organisations which usually demand a fee for their opinion and in spite of this have a pretty dismal record. A day after S&P announced that the good ship SA was “steady as she goes”, Moody’s said that they thought they could hear disturbing noises from the steering gear and perhaps the helmsman was battling to steer her away from the rocks that are looming. What is always consistent in these cases is the reaction of the newly “downgraded” entity and National Treasury’s indignant dismissal of this news was text book. It is true that our debt and financial positions are nowhere near as bad as Greece, Ireland or Italy but we should note that our own president seems to share the Italian fellow’s way with the ladies. And the proportion of our government’s spending that goes to service the interest on the debt is climbing. The main victim of the Moody’s announcement was the rand which moved down more than 2% against all major currencies. But then it more than recovered, presumably on the news that the wise women and men at the Reserve Bank chose to leave the repo rate unchanged. They did, however mutter that maybe the time will come when money ought to be made a bit cheaper. This encouragement of the borrowers at the expense of the savers is an uncomfortable policy at odds with the supposed needs of the country.

The same National Treasury have long failed to provide a satisfactory explanation for why they cannot ring-fence the income they derive from their taxes on fuel. This seems to be an obvious source for funding the construction and maintenance of all roads in the country. However, that cash disappears into the general state coffers where it is used amongst many other things on minister’s hotel bills and presidential jets. Instead the preference seems to be for toll roads. The welcome but costly improvements to the major routes around Joburg have been built with borrowed money that they intend to repay once the tolls begin to flow. The proposed toll tariffs caused an outcry and the implementation of the tolls has been delayed at least until February so that special interests can be placated. This in turn has alarmed the investors who lent the money in the first place and they have declined to lend any more.  Obviously desperate for some income, the Roads Agency has begun to market their so-called e-tags which offer a discounted toll fee compared to merely letting the computer read your number plate and post you a bill. Many of us are interested to see how the post office will cope with the volumes of mail this method will generate. Since the e-tag system can be linked to a bank account what remedy would one have if someone duplicated your number plate and spent the whole day travelling around the city clocking up toll fees and draining your account?

In the meantime the city around which they are driving is draining its own bank account pretty swiftly. The outstanding arrears of rates and services is an outrageous sum and it is high time they resorted to their old policies of hiring people like Jimmy Abbott the renowned heavyweight boxer and  Lions supporter to go and collect some debts.

The Financial Services Board has warned the industry that they will be very strict about ensuring compliance with their “Treating Customers Fairly” policy. Those of us who actually have customers and clients who are likely to take their business elsewhere unless they feel fairly treated, are offended and puzzled by the idea of yet another set of rules to be obeyed. What about having an alternative government to pay our taxes to because this one seems to pick on me most unfairly and often?

Now that was a rather special Test Match. Beating the Aussies in two and a half days is great. If it had gone on any longer I fear Tidemarks would not have seen the light of day and at least one local columnist would have been stuck for material next week.

James Greener

Armistice Day 2011

BACK PEDALLING ON THE REFERENDUM

For the last three months the range between the day’s high and low value of the All Share has almost always been greater than 1% of the value of the index and frequently greater even than 2.5%. Overall, however, the market has really gone nowhere. In these circumstances even the best informed are bound to make what later turnout to be poor decisions. The point here is that even if one hopes that maybe the bull has returned there are still large pockets of uncertainty and inclined selling if the spin accompanying the latest news release is negative.

Unless you are one of those fortunate but dull suits who are being paid by the taxpayers of your own or probably some other nation, you will have no time or inclination to follow the ins and outs and ons and offs of the circus that is laughingly named the European Economic Union. None of those words seems fully apposite. A particularly amusing episode in this soap opera, seemed to be about asking the Greek nation whether they would like to work harder and pay more tax and take instructions from Germans and Frenchmen. The alternative seemed to be to return to a life of dancing on the beach, sipping ouzo, breaking the odd plate and forgetting to repay loans to Germans and Frenchmen. Unsurprisingly this referendum idea has been scrapped. The serious side to all this is that Europe is a very large and important cog in the global economy. No one wins when it is so jammed up.

A tiny and nearly invisible cog in the machine is our own stuttering economy here on the southern tip but nevertheless we scored an invitation to send some representatives off to the G20 meeting in Cannes. So far reports suggest that our folk there have delivered some hectoring socialist diatribes about taxing the rich. Provided that the rich excludes the delegations of politicians and bureaucrats who are also present this is often a popular theme. However, as already mentioned there are far more entertaining topics on the agenda.

Who knew that there was an organisation called the Airports Council International and that they have just held a “gala dinner in Marrakech”?  At this, no doubt glittering event, paid for by taxpayers and air travellers, both OR Tambo and King Shaka international airports were inducted onto the organisation’s “Roll of Excellence”. It is a pity that the report of this accolade appeared right next to one about how 75% of the baggage handlers at these places arrive at work intent on stealing stuff from the suitcases they are paid to load.

The idea that economics is a subject worthy of a Nobel Price is moot. There is no evidence that research and development in this subject has enabled the planet to organise its affairs so as to avoid the cycles of booms and busts that so savagely disrupt it. That said, I am obviously disappointed that the committee this year again failed to spot my contributions. I have never been to Stockholm. Another local contender must be the salesman who flogged ten electric bicycles to the Durban Metro Police. This event was celebrated with a photo of the mayor on board one of these machines cruising along the (flat) beachfront boardwalk and an enthusiastic promise by him to ride to work at least once a week. The forthcoming Climate Conference to be held here in Durban is spawning limitless foolishness. The blurb trumpeted that battery bikes are “eco-friendly” because recharging is achieved simply by plugging into a domestic power socket. Oh dear!  Prizes should be offered to the first reporter who snaps His Worship pedalling uphill to his Pinetown home once the juice runs out.

An equally alarming picture of the Springbok Sevens new strip has also been released. Surely the Y-front pattern on the shorts is a joke? Oh! And did you see? The Golden Lions ended the season at the top of the log. Rather satisfactory I think.

James Greener

4^th November 2011

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)