BULL TAMPERING

It was quite a week for numbers. The GDP figures for the last three months of 2103 were published on Tuesday followed of course by the 2014 Budget on Wednesday afternoon. There was, however, very little unexpected in this daunting blizzard of statistics, some of which contain only a residue of reliability. For example it is hard to understand why a sector like manufacturing can report such enormous changes in business from one quarter to the next. In 2013 the four quarterly quoted growth figures for this sector were -7.9%, 11.7%, -6.6% and 12.3%. It was this last number, together with an equally puzzling 15.7% from mining which lifted the overall growth to 3.8% for 4Q 2013 that cued murmurs of satisfaction from some commentators. Actually it is a shockingly low number and the country will probably soon wake up to find that those self-important rating agencies have dished out another downgrade. For those of us not actually seated in front of the levers of power, the problem and its solution appear to be very clear. Simply the state is way too large and way too involved in affairs in which it has no skill, experience or business.

This was emphasised by the Budget where the hapless Minister Gordhan finds himself with absolutely no wiggle room. His colleagues have utterly failed to respond to any pleas that they should curb their spending which this year in total is planned to rise by 9% to R1.25trillion. By his own admission the president is unable to grasp such large numbers and seems to hope that the electorate is also hazy on what this means.

Individual items on the expenditure schedule which catch the eye include R178bn for Basic Education from which the nation appears to extract precious little value. The government will pay interest of R115bn on the debts it has incurred by running a deficit for so long. This amount is almost 14% higher than last year and is certain to get far larger in the future because of the continued shortfall between spending and income. This year the state will need to borrow 21 cents for every rand it spends.  Only the most optimistic of us would run our household budgets like that. Expected further interest rate rises and perhaps a ratings downgrade will seriously exacerbate matters for Gordhan.

On the income side of the budget it is fun to note that the total income tax the minister expects to collect from the  287 000 individuals with the highest taxable incomes, exactly matches the  R137bn that the government will distribute to the 15.8 million social grant recipients. At just over 1% of total expenditure this hand-out is probably money well spent and makes a significant difference to many lives. However, this juxtaposition highlights the fragility of the fiscal model. An analysis published in the Budget reveals that for every one of these top bracket individuals who emigrates or falls off the taxman’s list, at least five from the next bracket are needed to replace the lost tax revenue. The country is very low on golden geese.

But, no worries. The market is making us richer. No one can remember what it was that scared us so much in January and brought the bear out to see what all the noise was about. February’s All Share performance will be around 5%. Most of the companies reporting so far this season have delivered reasonable results. The budget was of concern only to the detail geeks. That nice little old lady Janet Yellen at the Fed seems so much friendlier than Helicopter Ben Bernanke. She has made the dollar weaker which means our own rand is looking perky. Party time again.

But now the serious stuff. The third test versus the Aussies at Newlands with the rubber at 1 all. Eish. It is going to be a tough five days. At least on Saturday we get relief from the tension by watching the Lions give the Bulls a rugby lesson.

James Greener

27^th February 2014

DOCTOR WHO?

Whee. The JSE All Share has set a new record high. Well above 47 thousand. Our market has been among the most ebullient on the planet. Buyers are elbowing each other aside in an effort to tempt sellers to accept ever higher prices – especially for gold mining shares. Let’s hope this ends well.

 On Monday a new and curious listing will appear on the JSE Oil and Gas producers board with the name Camac Energy and share code CME. This company is already listed on a small US exchange with the ominous code CAK. Its business is to explore for and develop oil and gas finds in Africa. The chairman and CEO (often a worrying merger) is Dr Kase Lamal, who together with his family seems to have a majority shareholding. Excellent sleuthing by reporters Brummer and Woods of The Mail & Guardian have discovered that Dr Lamal arranged for our very own President Jacob Zuma to receive an honorary doctorate of Humane Letters from the Texas Southern University last year. But perhaps the really alarming part is that the investment managers of the state pension fund have taken a 34% stake in Camac for a total investment of USD 270m. A few quick prods of the calculator keys reveals that if Camac should trade below about 785 cps on Monday the pensioners will already be underwater on that purchase. The rest of us are probably best advised not to touch the thing with a barge pole. Sasol is just so much better in that sector.

Unsurprisingly the national airline has again pitched up at everyone’s front gate demanding money. They complain that one reason why they are broke is that government tells them which routes to fly and these includes spots to which no one except bureaucrats and politicians want to go. Further concern for the taxpayers about the situation lurks in the chairman’s claim that it should be recognised “…that SAA was turning its business around with a history of nothing and an empty balance sheet.” This remark clashed somewhat with the wonderful collection of historic pictures of earlier planes in the SAA fleet that is doing the rounds as well as with the hope that the balance sheet, while very unhealthy, should at least acknowledge the debts to the fiscus of many billions. And to show that the managers at the state airline seem to know as little about flying as the managers at the SABC know about broadcasting, came the proposal for a reduction in flying hours required before admission to the cockpit. This is not as scary as it sounds and merely proposes that the trainee occupy a sort of jump seat behind the real pilot to see how things are done. That this would increase flight crew costs by almost 50% was not discussed.

Minister Gordhan delivers the 2014 Budget speech next week. He has yet to find a way to fill the deficit caused by the slump in revenue following the 2008/9 recession. There’s scant hope that he will get any help from his colleagues, all of whom certainly have made plans to spend even more of our money in the next year than ever before. We can therefore reasonably expect him to announce increases in effective tax rates and imposts. He may even have found something new to tax. How about oxygen? He’s got one for carbon already.

 The pre-election rhetoric is full of assurances that the state’s program of allocating resources using political criteria has been a great success and will therefore be enlarged and more vigorously enforced. It is a great mystery that all those who are determined to fix the world don’t pause for a moment and consider that if it was possible for rules, laws and regulation to fix the world, then it would surely have been accomplished a very long time ago.

The opening Super 15 matches produced very satisfactory results for both the Lions and the Sharks. The groundsman at St George’s Park in Port Elizabeth seems to have prepared a wicket which has somewhat neutralised Mitchell Johnson, the Australian bowler. The rains have arrived in Durban and ended a long spell of very hot weather. It should be a good weekend.

James Greener

21^st February 2014

THE BULL GETS ALL THE VALENTINES

Well that was certainly not the sort of market correction to scare anyone. A mere hiccup, now almost half recovered. We bears are very disappointed. 2014 is supposed to be the year when we can go shopping for great values like we saw half a dozen years ago. Patience is a virtue they say.

Unfortunately this month’s release of employment data was another rather good example of just how difficult it is to obtain reliable data about almost any aspect of the nation’s performance. It is frankly really hard to believe that by the end of last year there were 653 000 more people with jobs that a year earlier. This represents a 4.5% increase in the number of people employed in a period when the same department that publishes these statistics, claims that the working age population rose by just 1.8%. One would have thought that this sort of increase in the number of people earning an income should have helped the retailers report reasonable results for the Christmas season. In fact their numbers published so far are rather disappointing.

The delisting of Palabora, the country’s sole producer of refined copper is yet another milestone in the government’s route towards a complete reconstruction of the mining industry. Just where that route is leading has not been publicly stated but with so many communists in control, complete nationalisation of the nation’s mineral wealth seems a fair assumption. Palamin is not a big company – no more than R6bn market capitalisation -- but its departure further restricts the choice investors have when looking to our markets for exposure to natural resources. There are now only about a dozen listed mining companies on the JSE with a market capitalisation above USD1bn (approx R11bn).  Almost all are either gold or platinum producers. This is a sad situation given how many world class mineral deposits there are within our borders.

The rand has been battling solidly to try and recover some dignity; which is something that definitely was lacking at the much heralded fancy dress bash and banquet that we taxpayers funded so generously in Cape Town this week. The State of the Nation Address is merely an annual version of something the president does all year which is to omit the hard parts and boast about the good ones. For some reason an invitation to go to parliament to witness this exercise in mendacity is THE hot ticket of the summer and an excuse to display very dubious dress sense. Particularly annoying was the faux airline captain’s uniform donned by the minister who has piloted the national airline into the ground.

As well as the inevitable flow of money in unusual (and totally opaque) directions, the other unanswered question is why South Africa needs a “spy satellite”. Who are we spying on?  What are we discovering that a quick peer at Google Earth won’t tell us? Is it yet another piece of the Nkandla security cordon? Ironically no one seems to know where the satellite itself is.  But once they do, how about using it to search the country for youngsters who can bowl or kick or hit a ball accurately? Heavens knows we are in dire need of lots of those.

We shall never know if it would have been better if Captain Graham Smith had elected to bat first at Centurion this week. Maybe this Aussie strategy of strong middle order batting and terrifying left arm pace (with bad moustache) will prevail anyway. At this stage it looks as if the first test will be all over before the first local Super 15 matches kick off. I really don’t like this overlap of major sports. Life is hard enough wondering why if you fall on your bottom on the ice twice you can still win a medal. In the meantime there are some folk participating in the Duzi canoe marathon standing up! As if paddling sitting down isn’t hard enough.

James Greener

Valentine’s Day 2014

LET THE (WINTER) GAMES BEGIN

It’s gone ominously quiet and steady. Even the rand has found some buyers – although it might just be the tourists who have appeared in great numbers delighting in fine dining for less than 10 units per head of their own currency. After a nerve-testing plunge of 6% off  the January  peak the All Share index has scrambled back a little to around 45 000. This was a level it first breached in October, which sort of demonstrates the bounciness being experienced as the market tries to decide if this is the end of the bull or not. Frankly there is little news or data around anywhere that makes one confident that businesses are going to be able to report substantially better earnings than they achieved last year. While this does not automatically mean a sell off – there are not many alternatives to owning a share in a well run company that has a solid customer base – perhaps investors are not going to be prepared to pay more than they did last year and prices might stop going up.

In the meantime our government continues to extend its malign and value-destroying tentacles into the wealth creating private sector. Yet again a minister has told the banks that their money lending practices and policies are all wrong and that a raft of instructions from the government on how to run a bank is on its way. Another minister is busy meddling in the fishing industry while ignoring that part of her job which tries to ensure that whoever is doing the job at least has something to catch. Then the minister in charge of mining stands up on the stage and tells the world that the sector is doing fine – a claim seriously at variance with the facts all around her. And over at the health department, where they are hell-bent of banning liquor advertising, they have moved their sights on to sugar which someone has told them is a very bad thing and ought to be taxed. Do these guys and girls even read the speeches they deliver? If they do then that is surely evidence that they have scant understanding of the content.

This week the government announced that it is looking at the feasibility of selling “social impact bonds” to raise money for projects involving small businesses and job creation. Investors will be repaid with a return that will be calculated on the savings achieved as a result of the project’s success. At the risk of being once again labelled overly bearish, this looks like a poor investment. Similar to the “Green Bonds”, that the mayor of Johannesburg told a conference of global bigwigs gathered in his city, that he is hoping to issue. In my experience any bond that purports to be raising money for a “good cause” is simply expecting investors to accept a lower rate of return than a similar bond without that cachet. This may appeal to some lenders but not this one.

Good news is that the presidential hotline is now resolving 94% of the cases referred to it by members of the public. This is three times higher than it was scoring in 2009 when it was established.  This is undoubtedly commendable news but there are several questions that need answers before getting too excited. Who knew that this facility was still available? What sort of questions is not being answered successfully? Have the difficult questioners just given up? Is the president embarrassed by the rather modest proceeds of Nelson Mandela’s estate when compared to the wealth he has accumulated from the taxpayer? What does the president regard as his greatest achievements while in office?

The Winter Olympics open in Sochi today amidst accusations of corruption, incompetence and being unprepared.  In the end all that needs to happen is that the athletes who have trained for four years are given the facilities and opportunities to deliver their best performance against worthy competitors in front of unbiased and honest judges.  May they have the successes they deserve even if the rest of us can’t see the point of sliding rocks on ice or hurtling into space with planks strapped to our feet. PS. Where exactly is Sochi?

James Greener

Friday 7^th February 2014

CHICKENS SEEKING ROOSTS

Well now something has undeniably changed. The repo rate has been lifted by 50 basis points by the wise men and women who met at the Reserve Bank earlier this week. Unfortunately for them but unsurprisingly for the rest of us omniscient beings, this move so far has had the exact opposite desired effect on the markets. The bond market has swooned, share prices have slipped and the rand has barely paused in its slide into invisibility. The level of 20 to the British pound is not far off.

As suggested before, this rather tentative official interest rate increase, while welcome for those of us who are savers, is way too small to hide the damage being done by the political rhetoric and posturing ahead of this year’s general election. Foreign and local players will continue to sell rands and buy other currencies so as to avoid the large doses of stupid that our leaders seem to be taking.

Talking of which, why is the election date not being announced? Is the ruling party so appalled at the way in which events are unfolding and potentially eroding their support base that it is nervous about setting a date? Do they first need to think up and hold some sort of block-busting vote-catcher pyrotechnic display of threats and promises?  

Certainly their selection of a highly dodgy, killer-bomb detonating ex-terrorist to head the Independent Police Investigative Directorate is setting off alarm flares among the more sensible folk of this land. As is the selection of many convicted criminals for the party lists which totally explodes the claim of having no tolerance for corruption. Connoisseurs of irony have so many examples to choose from here on the southern tip.

In the US the Federal Reserve has turned down the volume on the money hose another small notch and merely the news of this move has caused all kinds of people to catch a dose of the vapours. For those of us who firmly believe that most official interventions in markets are unwarranted and ultimately damaging, this behaviour is the finest sort of supporting evidence for our views. Way back in 2008 banks were lending ridiculous sums to obvious deadbeats because they knew they could parcel up and sell those loans to naïve and unsuspecting investors. By the time the borrowers defaulted, the banks were far away. Instead of forcing the banks to unwind their messes and if necessary go bust, the politicians doled out taxpayers money to paper over the cracks. But now, once again, the poultry is looking for somewhere to settle down. Only when it is clear that governments will no longer try to protect most voters from the consequences of their own decisions can the markets perhaps return to historically sensible valuations.

Company results season has come around again and this time there are indications that there are not as many free spending shoppers as we have become used too. Tones of caution and warning are in the air. Some companies are reducing staff numbers and selling off unprofitable divisions. Maybe this time the market has really peaked?

If it wasn’t for the news that Rear Admiral Samuel Hlongwe has been named as chief of the navy we would probably have never learned that Azerbaijan also has a navy. It is reported that the admiral received naval navigation training in Azerbaijan. Since that country is land-locked presumably the practical lessons took place out on the Caspian Sea where conditions are likely quite different from the Cape of Storms. The admiral must be delighted that he now has only a desk in Pretoria to steer.

Even if the Proteas are the best test cricket team in the world most of us find a reason not to go to the stadium and watch them. And so those empty seats have provided our foes with the excuse they need to relegate us and just about every other country to a test B division. Our sole rejoinder to this insult is to give the Aussies a hiding when they deign to pitch up here next month. Unfortunately that is unlikely to change any minds in the lofty heights of world cricket administrators but it will still be very satisfying.

James Greener

31^st January 2014

BUNNY EARS ARE BACK

The exchange rate is not a simple thing to grasp. For a start we are being told the rand is disastrously and rapidly weakening and yet the numbers being paraded on the TV and in newspapers are getting steadily larger. This week there was a great deal of fuss when the number 11 appeared. This was because it now takes more than 11 of our runts to purchase a solitary greenback. Actually buying or needing forex is not a common experience for most South Africans. Even in Cape Town – which everyone says is like a different country -- the people use the same money, so what’s the fuss?  The main difficulties with our cash is that we never seem to have enough of it, and the new Mandela series bank notes seem to wear out and get dirty quite quickly.

Sadly of course the effects of needing more and more rands to buy one measly US dollar will soon enough get felt in everyone’s pocket. Most stuff – critically fuel – is priced in dollars. In fact our currency has weakened more against the pound sterling in the last few weeks than against the USD. Fortunately, except for holidays, not very much we buy is priced in pounds. With the notable exception of Scotch Whisky!

Some analysts are warning that the forthcoming inflation will prompt the Reserve Bank to tug on the “Increase Interest Rates” lever. But just adding 50 basis points or so to the return on a bank deposit will not dispel the growing perception that security of ownership of assets is declining. People are once again displaying a preference for assets held offshore where there is less opportunity for the government to suggest redistribution strategies.

Here in KZN the old vehicle number plating system that quaintly revealed in which city the vehicle is registered has survived up until now. But this year, car owners must change over to the provincial system in use elsewhere in the country. The reasons offered for this inevitably costly change, range from the asinine (too colonial) to the obviously illogical (better control). The real reason is bound to be related to a relative who has won the rights to be the sole supplier of the new and expensive number plates. As an incentive for us to welcome the change, the new plates will carry a picture appropriate to our province. What will that be? Sunset at Nkandla? Dusi Canoe Carriers? South Beach on New Years Day? Cable way in the ‘berg? Leopard skin ensembles?

This week it was discovered that the sculptors of the somewhat overly imposing bronze statue of Nelson Mandela just unveiled in Pretoria had secretly embellished the icon. After being denied the convention of signing their work, the artists crafted a very small and all but hidden model of a rabbit in the great man’s right ear. How this delightful addition was discovered is unknown but officialdom has ordered that it be removed .The artists claim it is their trademark. This fuss is somewhat reminiscent of the brouhaha about “the rabbit in the thorn tree” several decades ago when FNB was forced to alter its logo after someone alleged that the bunny allegedly lurking in the silhouette of a flat-crown thorn tree was an ANC symbol. One would like to think that Madiba himself is quite pleased with his companion.

It really is high time the government closed the Department of Sport. After a particularly poor showing the national soccer team was blasted by the minister who realised there was now no chance of a photo op of him hoisting the CHAN trophy in time for the elections. Sport is solely the preserve of those keen and fit enough to play, those clever enough to advise from the stands or the couch and those generous enough to sponsor our efforts. There is absolutely no need for politicians to be involved except as players or fans. And this is true worldwide. Watch developments at Sochi.

James Greener

Friday 24^th January 2014

WHO WILL BUY OUR RAND?

Our poor little currency is really getting clobbered. Fortunately no one in charge has suggested that the Reserve Bank ought to be in there defending it. If they tried the speculators would whistle through the nation’s foreign currency reserves in a heart beat. Equally no one has yet dared to admit that perhaps foreigners and locals alike are disappointed with latest examples of a clueless leadership and the seemingly officially sanctioned waves of corruption and theft of public money. Every South African can tell a story of crime, corruption or incompetence more horrifying and disgusting than their neighbour. Attempts by the few straight law enforcement people to bring cases to court invariably collapse when it turns out that the evidence has disappeared or some other equally shocking excuse. Our democracy is moving inexorably towards the historically inevitable next stage which is dictatorship.

The files and dockets of evidence on the Libor fixing scandal in London have, however, not mysteriously gone astray. The people who are suspected of playing a part in this scheme are being meticulously hunted down. One website even offers a nifty dynamic graphic that displays the links between the various participants. Most non-market people will have little appreciation for just what a big deal it was that this nearly sacred benchmark interest rate was being manipulated on a regular basis. This was a very significant fraud being perpetrated against just about everyone who had money in a bank account. The size of the penalties issued so far and the alacrity with which payment has been made makes many of us very suspicious that the full story has not yet emerged. On second thoughts, perhaps there is a great deal of information which has somehow got lost.

The incident has also highlighted the quality and integrity of the data produced by and for the financial and economics industries. From such all-important block busters like a nation’s GDP and inflation rate and government deficit down to small but specific reports like the outcome of a mineral exploration or a due diligence test of a corporate, the degree of uncertainty is itself very uncertain. With that voracious maw of the internet demanding to be fed immediately and unceasingly the incidence of genuine mistakes is also increased and that helps to disguise the fakes and the deliberately misleading numbers

 Oddly enough however, the rand dollar foreign exchange market is probably sufficiently liquid and transparent for the rates at the time of a deal to be real and representative. This indicates that the sustained selling of the rand is also real and not a consequence of some short- term badly handled orders. The message is that people really don’t like our money.

Yet again my invitation to attend the annual talking shop in snowy Davos has failed to arrive. The great and good in the worlds of governance and economics will just have to manage without being asked difficult questions like where is the global recovery. And anyway I have a much better invitation to go and look at birds in St Lucia.

Skipping through the sports channels the sight of international soccer being played in a nearly empty stadium caught my eye. It turns out that this is a part of Chan, a tournament with a silly name being held right here in SA. Non-existent publicity coupled with a very poor choice of season has prevented Bafana from attracting home ground support. Some one will win but I doubt it will be us.

James Greener

Friday 17^th January 2014