WASHED OUT

At a ratio of nearly 27 barrels of oil for a single troy ounce of gold – a millennial high – prospects for our gold rich, oil poor nation should be amazing. Instead, however, we are wondering how to keep the lights on, the national airline solvent, the broadcaster honest and the citizenry from attacking each other. The most recent spur to the financial excitement, which includes rising prices of both share and bonds, was the announcement by the European Central Bank that they are unspooling the fire hoses and will be spraying money into every corner of the euro zone at a staggering rate of 60 billion euros a month for at least 18 months. Just 1 week of that would wash away our fiscal deficit! The majority opinion is that this massive intervention is a good thing, but the price of gold, especially in euros, has risen sharply. Does this suggest that some folk feel safer in a hard asset?

Meanwhile over in Zurich, the Swiss Central Bank chose to give up pretending that it knew what the right price of its currency should be and turned that job over to the markets,. This brave and good move was quite unexpected and resulted in several speculators becoming seriously holed below the water line and sinking without trace in minutes. Let this be a warning for those who feel tempted to respond to the breezy invitations to become a currency trader that appear in our media from time to time.

The Davos extravaganza is becoming rather annoying. If the advice, opinions and solutions offered there by the allegedly intelligent and powerful were any good, the condition of the global economy would improve with each passing year. Instead, it most definitely does not. Taxpayers and shareholders are of course footing the bill for the politicians and executives who feel that a snowy background confers gravitas to their waffle. Carefully timed for this shindig, a well known charitable organisation barely managed to hold back the tears while announcing that their research has revealed that rich people own far more stuff than poor people. Just identifying this astonishing and unsuspected inequality was not enough, however, and it naturally triggered an avalanche of demands that governments must redistribute wealth and tax every one and everything into submission.

This proposal of course makes the completely erroneous assumption that politicians are the best and most effective people to spend money that other people have earned. It is interesting to note that really rich people seem to prefer setting up their own charitable foundations rather than simply pay more tax and trust the bureaucrats to make sure it reaches the right places. Nevertheless there are plenty of rich folk ambling around Davos at the moment and every mendicant and his agent is desperate to get an invitation to attend to make their pitch. Number 1 is there together with the wife who made the most credible claim for looking good in skiing kit. Our delegation includes half a dozen cabinet ministers, at least one of whom has been on TV gravely explaining that the Eskom team decided to save money and not attend the jamboree! Has it dawned on someone that there are far more important things to do back home?

At last we are going to be given sight of the list of the 204 National Key Points which hitherto had been deemed confidential. We know that the president’s private residence, swimming pool and cattle kraal is on the list but there are bound to be surprises. Aside from ports, dams and power stations (if working) there’s probably not all that much else we would miss if they fell into enemy hands. Hopefully a few breweries and wine cellars will be listed as indeed should be Ellis Park, the venue for our historic victory over the All Blacks in the 1995 Rugby World Cup Final.

For someone who was at the unforgettable “438” defeat of Australia at the Wanderers in 2006 it was just a tad sad to see that record shattered this week. Oh wouldn’t it be great if the Proteas carried this form through to world cup starting next month? And also starting very soon is the Super Rugby series. Nearly unthinkable in this present heat though.

James Greener

Friday 23^rd January 2015

COME IN NUMBER 1. YOUR TIME IS UP

The world of money has fallen deeply in love with all things American. The US dollar just keeps on getting stronger. Many of those dollars are being used to buy government bonds. Lenders are seemingly satisfied that getting a return of just 2%pa for the next 10 years beats just about anything else available. Presumably the sentiment is that the US is in peak economic health with everyone employed and manufacturers and producers eagerly satisfying consumer demand. Or perhaps it’s just the ceaseless assurances from Federal Reserve Governor Janet Yellen that she and her cronies are far smarter than markets in determining the price of money and that there’s nothing to worry about. For more than 6 years short term interest rates in the USA have been kept at nearly zero. One probable consequence of this policy is that it has distorted price setting and signalling mechanisms all over the world. Even here in SA share investors have to pay more than 20 times annual average earnings for a company on the industrials or financials board. Over many years of testing this particular metric, it is clear that real value is available only when that multiple is half that number – as it was in 2008.

By Christmas time our Reserve Bank had put R134bn in cash notes and coins out there in circulation. Now some of this is lost for ever down the back of the sofa and quite a bit is being used up in Zimbabwe as well, but that still is a great deal of  money that’s spread amongst 53million of us. Say five grand each, excluding the children. Interestingly this figure is almost 11% greater than last year’s total so even allowing for inflation and population growth, on average we all had more cash on hand than ever before.  There’s a huge cash only economy going on below the official radar. This will be confirmed by anyone who has watched a so-called “bakkie-builder” at the hardware store paying for their materials with notes peeled off a roll the size of a polony. School fees also frequently call for settlement in the amount of several thousands and reportedly cash payments are not uncommon. A plastic shopping bag is the purse of choice for such large amounts of cash and the car boot acts as the ATM.

Dignitaries simply love to fill their days with events where they are invited to open things, make a speech, get photographed shaking hands with grateful and beaming lesser beings and then adjourn for refreshments. The news that there is to be an official opening of  a piece of beach down the south coast which has been set aside for those who like to get their kit off  when at the seaside, suggest that this one hasn’t been researched fully. What will happen? Will the adoring throng be naked? Will the politico cut the ribbon and then undress and plunge into the briny or play a spot of volleyball? Where will he or she put her notes when clutching the glass and plate of nibbles?  Will there be media coverage? This could be great fun. What most definitely is not fun is the sight of Transport Minister Dipuo Peters and her “entourage” of more than half a dozen officials holding a press conference to announce how badly her department is doing its job. The number of casualties on our roads will undoubtedly have risen even further before she reaches the usual and meaningless platitudes and assurances that in future there will be trained, incorruptible and diligent traffic policing. I wonder if there was a lunch afterwards.

There is something vaguely sinister and disquieting about the decision to publish the school leaver’s exam results by candidate number and to omit the names. Is this a precursor to the government using just numbers to refer to office bearers at the failed and dysfunctional state owned enterprises? After all, we already know that our leader is Number 1. Will we be told that Number 32 has stolen all the money at SAA? Or that the dog has eaten that Number 113’s  degree certificate.

I used to really enjoy watching the TV coverage of the Dakar Rally. Somehow now that its in South America it rather different. Still very dangerous though. The pyjama games against West Indies begin tonight. Hopefully these will be tighter than the tests turned out to be.

James Greener

Friday 9^th January 2015

AND THEY’RE OFF

Astonishingly the All Share index managed to scramble back up out of the nearly bottomless pit it fell into last month. It ended more or less where it started 31 days earlier but after giving many people a severe fright. This enabled the total performance for calendar 2014 to reach 10.9%pa, a level that seemed impossible just days earlier. Nevertheless this is a lot lower than the long term average annual performance of just over 20%pa. But 2014 was the 6^th year in a row in which the JSE delivered a positive return – something which has never happened before in at least the last 40 years. Is this a sign that 2015 must surely be a down year?  Markets are notoriously disrespectful of precedent.

Unpacking the returns a bit, it is intriguing to note that despite seeing a bank blow up last year, the banking sector index romped in with a 32% total return. Are the survivors really making so much money? Many of us distrust (and even dislike) Telkom so it’s dispiriting to note that it single-handedly drove the fixed-line index to a 150%pa return! With a current market capitalisation of some R36bn, merchant bankers are likely queuing up outside National Treasury waving proposals for the complete privatisation of this now suspiciously overpriced government asset. The Listed Property index reveals that shareholders enjoyed a 27% return last year and the Health Group index came up with 36%pa suggesting that something may be being mispriced in this industry. Unsurprisingly the mining index lost 15% in 2014 with platinums and coals down 31% and 27% respectively. Sadly this is one forecast many will have got right as the situation at the start of last year was not promising and everything seems to be stacked against this industry

It is fashionable to wail about the state’s financial situation. The most recent cause for concern is about alleged corruption and favouritism at SARS, the nation’s tax collecting agency.  However, over the past twelve months, total revenue collected amounted to R930 bn, which is more than 11% greater than they reported a year ago. Clearly those of us who don’t have the contacts required to be dropped quietly from the SARS address list are digging ever deeper. On the expenditure side the equivalent figure is R1 104bn which is just 7% higher than the comparable amount for the prior period. In the utterly unlikely event that these growth rates were to hold for the next 6 years, the minister of finance in 2021 would be able to boast of a balanced budget! Obviously those of us still looking for a bad news story can point to the fact that currently for every R100.00 that SARS collects, the departments and ministries spend R118.71. It would certainly help if the politicians and their employees were a bit more parsimonious in their spending habits.

The unprecedented collapse in the price of oil, mankind’s largest expenditure item should begin soon to be noticed in the prices of everything that requires transporting.. Already indignant letters in the media are demanding that stores ought to be slashing prices on life’s essentials such as bubbly and watermelons. Is there any sign that airlines are trimming their fuel surcharge? Undoubtedly producers and distributors are going to enjoy this opportunity for as long as they can and they will be surreptitiously supported by the beneficiary of value added taxes i.e. governments. Only properly educated economists understand why deflation is a bad thing. The rest of us are happy to see the prices of everything drop; except of course, the price of our own labour.

While it certainly is great to see the Proteas playing test cricket at home this summer there seems to be a spark missing among the opposition West Indies side. Pity really. Oh well one can still watch with half and eye while updating the new diary with the Grand Prix dates and the two world cup schedules. This year has a great deal of potential to either raise or crush our spirits while seated on the TV couch. Two world cups and the Afcon trophy in the cupboard by year end is an exciting prospect.

James Greener

Friday 2^nd January 2015

OILY PATCHES

What ever it was that investors saw a week ago that convinced them that the end of the world was nigh has now gone. Share prices have rebounded sharply and many bears will be nursing severely burned fingers. Except in the commodity markets where the price of most things we use and consume are plunging. Normally that would be taken as an indicator that economies were slowing down. And often that suggests that companies which make and sell things will have fewer customers and lower profits. And following on that theme it might be reasonable to assume that there is no need to pay ever more for shares in those companies. But it seems that this simple reasoning is obviously flawed and the share price correction was seen merely as a buying opportunity.  The All Share index is behaving like a pronking springbok. So much for a flat or even negative 2014!

The really big thing in markets is undoubtedly the collapsing oil price. It will be a long time before most of us get to read about all the aspects of this development where various global giants are waging a bitter war. The combatants include countries, power-blocs, massive public and private companies and certainly mischievous carpet-baggers. Even in rand terms the price of crude oil is back to 2011 levels when petrol was selling for well below R10 a litre. All we mere price takers can do is enjoy the unforeseen bonus for our spending patterns and wonder what the world will look like when the dust settles.

 The other big thing is the looming presence of and never ending intervention and interference in the markets by the Central Banks of the world. Their faith in their own ability to know the correct price for money is unfailing. Not a day passes when at least one luminary from one of these institutions warbles into a microphone and then stands back smugly to await developments. Presumably points are scored according to which markets respond and by how much. Central Banker of the Year award goes to he or she who causes the biggest reaction. It helps add to the confusion of course that most of us are unaware or even worse, uninterested in the detail that the National Treasury is quite different from the Central Bank. The fact that each can have very different opinions on the same topic is an endearing trait of the dismal science. The problem is that we have now all become far too concerned about what these allegedly learned leaders think and say.

It is intriguing to note that the Spar retail group market capitalisation is now again greater than that of Pick n Pay. This says nothing about customer market share of course, but investors are obviously pleased with developments at Spar, whose business model seems to be successful in creating a pleasant, welcoming and competitive place to buy the daily bread and milk. And even the sushi.

A somewhat puzzling feature of the current equity market is the punishment being meted out to the small range of pretty much risk-free variable dividend preference shares. At current levels of interest rates and market prices the highest quality of these instruments are offering pre-tax dividend yields of around 8.5%pa. And given the way inflation is being tamed by the falling oil price that seems very tasty.

What really is going on in the tax man’s offices?  Despite discarding the descriptive “Receiver of Revenue” name and rebranding itself as SARS, complete with snappy logo and the fiction that it is performing us a service, it is still the state agency none of us particularly like. In principle it seems a pretty easy task. Send everyone a form, apply the rules, compute the tax owing and lean on anyone who doesn’t pay. Now it seems that there may be a list of people who were not sent the forms or whose calculations always yielded refunds or who they didn’t lean on. In these days when the gap between what they collect and what their principal, the government, actually spends is getting ever larger, this breach on the income side is especially galling to those of us who failed to get onto that alleged list.

Sadly the body language of the West Indian side here to play a few Tests against the Proteas reveals that they are not all that interested  in cricket.  This makes it also hard to drum up enthusiasm to watch on TV let alone take the trouble to buy tickets and attend in person.

James Greener

Friday 19^th December 2014

HOT STUFF

The All Share index started off the year with a triumphant and dramatic surge through the 46 000 level. It peaked out seven months later at just over 52 000 and then pleased and teased the bears by plunging back to the opening value in mid October before bouncing back considerably. That bounce may however be running out of steam and it would take a mere 2000 point drop in the next fortnight for the index to end down on the year. This would be sad but not unexpected.  A great many ducks are standing just too far out of line for any reasonable arguments for a bull market to sound sensible. The rand, the rating agencies and the refusal to recognise a crisis are three interlinked reasons for the bear to take heart.

As usual the deluge of data that confronts the investor every day from both the official sources and the companies is very mixed and seemingly trendless. Bulls and bears alike are therefore equally able to make their cases. It may be worth noting that several property companies have recently come to the JSE to raise funds and seek a listing. These people at least think it’s a good time to be selling shares. Interestingly at least two of these funds have considerable portfolios of non-South African properties.

 No matter how the apologists for and supporters of the new regime try to explain otherwise, the plain fact is that far too many state-owned and run institutions are unable to deliver what we need in order to be a winning country. Presumably someone somewhere is keeping a spreadsheet (thank goodness for computers) that tracks the procession of clowns as they rotate through the posts of chairman, board member, CEO, COO, CFO and security guard at the  many parastatals. A second worksheet will be needed to join the lines of patronage, family ties and cronyism. And a third will be useful for recording the lies and deceits about education, experience, achievement and performance. Any idea of keeping a record of the flows of money in unusual directions will collapse because most of the numbers will cause overflow errors.

Also supposedly overflowing are warehouses around Joburg being used to store the assets of Muammar Gaddafi, once President Jacob Zuma’s best friend. This now deposed and deceased previous leader of Libya is rumoured to have entrusted the care of a great deal of his wealth to South Africa. This is a fascinating story but one that may turn out either false or badly. Custodians of valuable things are easily tempted and there may be great disappointment in store when the key is turned and the doors to the vault are thrown open. Noticeably, JZ’s newest best friends Presidents Xi and Putin are sending nothing here for storage except pieces of paper with their names on them as well as Jacob’s and perhaps a deposit slip for a bank in Lichtenstein. What do you suppose those two very serious power players think after our man and his wife of the day waddle up the stairs into the welcoming interior of the executive jet that whisks them back to Nkandla?

The government proposal to put a levy on the purchase of every electrical appliance and gadget is uninformed and very poorly timed. Undoubtedly there’s a problem with the proper recycling and handling of all the potentially valuable and hazardous gizmos that we toss out, but money collected by such levies is not usually ring-fenced for the promised purpose and disappears into the maw of general state spending (e.g. the fuel levy) Secondly, to raise this matter when we are not getting enough electricity to run anything is pretty tasteless.

Lets hope the Sevens lads don’t trip up against Wales like the ‘bokke did recently. It’s a great sport to watch if you can remember to turn on at 19:58 tomorrow evening in time to catch the 20 minutes of frantic action. Nevertheless it will still be much cooler in PE than at Leopard Creek where the Dunhill Championship golfers are facing mid 30s today! That should thin out the field.

James Greener

Friday 12^th December 2014

NO GRAVITY ON A COMET OR IN PARLIAMENT

It is puzzling and even rather tiresome how the government keeps trying to seek out presumed malfeasance in various private industries. The state has returned to fret about the alleged collusions in the construction industry half a dozen years ago. Of course when large sums of money are involved not everything is squeaky clean and misuse of public trust and funds does need to be exposed and punished. However, as the industry has wearily explained so many times, the capacity and resources of the nation did need to be allocated carefully in order to meet the expectations of hosting the Soccer World Cup. The JSE data confirms that the industry did enjoy a fourfold increase in earnings in the years before 2010. Shareholders and employees of those companies did benefit. But presumably someone important feels that he or she did not and so the witch hunt continues.

The ironies, however, are ceaseless. Many of the stadium location and design decisions were forced on the nation by FIFA, an organisation that must rank as one of the most corrupt and compromised on the planet. And closer to home our own parliament erupted into a violent uproar when the ruling party refused to allow any opposition to the idea that the nation deserves a president who fails to notice or even be curious when hundreds of millions of rands worth of renovations take place at his private home.

Only serious students of the political scene are able to explain the significance of the rupture between NUMSA and COSATU.  The confusion was compounded when one newspaper referred to the event as a “rapture”. For most of us, this all has much the same import as the news that the bowls club has expelled the croquet club because the members of that section were becoming a bit raucous after tea and threatening to damage the greensward. At its heart the issue is presumably about power and then undoubtedly money. Union leaders can depend upon the reliable cash flow of subscriptions which are deducted automatically from each member’s salary. It would be interesting to see just how numerous union membership would be if employees each month had to prioritise their union subscription against their other spending needs. Unions – and their overarching federation bodies – would truly have to fulfil a need in that worker’s life before he saw any reason to send off the money.

Only politicians and bureaucrats could believe that there will be any real impact from the imminent implementation of the driver’s licence demerit system. There is already a raft of regulations and laws which are ignored and not enforced. A great pity because our roads are very unsafe places these days. What’s the betting that the first drivers to be slapped with a demerit don’t have valid licences anyway?  

The most poignant remark to be aired about the comet landing event this week was a plea to “Jacob and Angie[1]” to at least fix the schools so that our children could learn to read. Deep Space Flight Dynamics could come later. Watching real rocket scientists at work was a deeply emotional experience. It was only when prodded by their fussing and anxious PR staff that they reluctantly faced the cameras and explained to the public – their paymasters – what was happening. Everyone was simply anxious to return to work and apply their enormous personal skills and expertise to the team effort. What a contrast to what is happening elsewhere in the world where ignorance, dogma and superstition are being celebrated and died for.

After last week’s comment about national sides winning went so badly awry it is best I say nothing today.

James Greener

14^th November 2014.

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[1] President Jacob Zuma and Education Minister Angie Motshekga

MEDAL PLAY

Central Banks would appear to be a close-knit lot. No sooner had the US Federal Reserve stopped buying its own government’s debt with freshly minted dollars, when their opposite number in Japan started to do it. This seemingly never ending flow of crisp new money pouring  into the financial systems tempts investors to believe that stock market prices are underpinned and so they set off on another buying frenzy. This is very pleasing for the governors of those banks who can point out to the political decision makers that: “See, everything is just great!” Meanwhile the debts mount – but no one seems to mind. Paying them off will be someone else’s problem.

Quite correctly there has been scant hysteria so far about the announcement by one of the self-important rating agencies that as of last night it has moved SA down a notch on their ludicrously lengthy scale of credit worthiness. However, they also adjusted their outlook on the country from “stable” to “negative” and that deserves notice. Reasonable people will not dispute that view. The tax man published his survey of his “clients” this week and without drowning readers in statistics it can be noted that SA is a nation in which most citizens enjoy representation without taxation. While historically the converse of this has often triggered a violent response, in our case the heavily taxed are seeking quieter unostentatious remedies.

It is unlikely that economic growth and higher employment will return to this country until we are offered a government which doesn’t feel capable of interfering at every level of human activity. Furthermore, we need leaders bold enough to reject the race-based cadre-deployment policies that have plagued this nation for about a century. There are talents, skills and drives aplenty, just leave them alone to find out what works.

A typical example of how socialists fail to understand what investing is about appeared in a report prepared by three parliamentary researchers. After surveying cases of Foreign Direct Investment world-wide they reached the indignant conclusion that the money foreign companies invested can be overtaken by the remittances they send abroad. That, dear researchers, is the point! When you invest, as opposed to donate, you expect not only one day to get your money back but, also to get a return on that money. Frankly, the foreign firms are not that interested in that politically correct stuff like job creation and skills transfer unless they can see how it could make them more profitable. There is nothing wrong with this attitude. After all it creates economic activities that were not there before and, guess what the result is? Employment and taxes happen, and all that remains for you, the government, to do, is to stamp their passports and get out of the way.

A really alarming flyer was delivered to the house recently. Under the banner “You Deserve Better” three local political activists quote a quite terrible national crime statistic and urge the Durban municipality to do something about it.  Quite right too. We do deserve better. The puzzle is that the flyer is published by the present ruling party. Are they suggesting its time to vote for someone else?

National police commissioner Phiyega is surely busy sketching designs for a new medal. This one will be for officers who are attacked while lunching and first recipients will be the two members of her force who, while stopped at a roadside stall purchasing snacks, were robbed of their weapons and locked in the back of their own van. Another benefit is that it will undoubtedly soon  join the rack of undeserved other gongs that she sports on her chest.

Isn’t it fun to watch our national sides winning? Especially against the antipodeans. Any word on why the Aussie T20 side are dressed to look like All Blacks? Certain voices suggest that Ireland at home will not be easy for the ‘boks tomorrow. It’s such a late kick off it will not be easy to be fully alert to be able to watch.

James Greener

7^th November 2014