WHO IS BUNKING SCHOOL?

The markets have assumed a sort of torpor with the exception of bonds which are leaking a bit. If people are waiting to see what the new US president is going to do next, they should by now appreciate that for the duration of his presidential term he will do what he promised. Even if that now seems rather foolish. Best to simply make investment decisions based on current information – which is that by and large most shares are fully priced!

There’s something deeply ironic about the news that Number One is unhappy with parts of the Financial Intelligence Centre Amendment Bill awaiting his signature. Financial intelligence is not a known strength of our president – just look at the list of rogues he has used for personal and official financial advice in the past. And now he is publicly attacking his own Finance Minister for sticking to the Budget that JZ and the rest of his cabinet drew up and endorsed.

Who knew that there is a National School of Government? It’s been open for about 3 years as part of the government’s praiseworthy efforts to professionalise the public service. Hopefully the curriculum devotes a great deal of time to the subject of where the government gets its money – a piece of knowledge missing from most of the population and far too many politicians. But fewer than 40% of the expected 9000 pupils have attended classes at the school – perhaps the tuck shop is overly concerned with “healthy food” – and so the distinction between public and private funds remains a mystery for most public servants. A consequence of the low enrolment is that the school is short of cash and naturally it too has been over to National Treasury with an upturned hat.

Despite presumably being intimately involved in the preparation of the expenditure wish list for his or her department, ministers still have no difficulty in complaining when Gordhan says “No. It’s not in the Budget.”. He must be a deeply irritated and saddened man not to enjoy his boss’s support and appreciation of his role. But even JZ could not be as foolish as to dismiss his finance minister just days before the 2017 budget speech? Could he?

We have remarked before at the transparency of the government budgetary process. Within minutes of the start of the Finance Minister’s annual budget speech the complete set of documents is available for everyone. Diligent analysts could spend a lifetime exploring and exposing unknown and interesting facts but don’t, because as current events highlight it is not a respected publication and anyway the bond market responds far more sensitively to big picture items like ratings rumours and presidential palavers.

This year the inconvenient difficulty is that the money coming in is rather less than expected, so not even all budgeted spending can be met. This shortfall is mainly a consequence of a very sluggish economy which, to be fair, is not entirely the fault of cabinet and government. There are global issues at work as well

Also clamouring for public dosh are six of the country’s seven kings. Citing the Zulu king’s annual grant of around R650m the others are feeling hard done by with their R1m a year stipend. This gap does seem to be exceptional but apparently, there are many legacy agreements to explain King Goodwill Zwelethini’s large pay check. The B league royals are unconvinced and want to be promoted to the Zulu league. Is it churlish and mean to suggest that none of these payments should be the taxpayer’s responsibility at all?  Surely all seven royal coffers ought to be filled by tribute from loyal and grateful subjects.

We are stuck with this messy and unfriendly (for SA) Super 18 format until 2020. There really is not enough talent or sponsorship money to support 6 teams here in SA. I suppose my attitude will change once the Lions start cleaning up (except for an honourable draw with the Sharks of course). The good news is that it’s another Sevens tournament weekend and the Blitzbokke are a joy to watch. Just as good as a David Miller century!

James Greener

The Day the Music Died Day

THE RECORD IS RUBBISH

With the exception of Sterling, because of course the UK is fighting its own demons, the little old rand is at its best level in 12 months against most major currencies. Real people (as opposed to us talking heads) are obviously not concerned by political and social developments (see below) and are still buying rands in order to do business here in the sunshine. A similar scenario is unfolding in the USA where despite the moaning about the new president, the share markets are surging. The Dow Jones index has cracked above 20 000 for the first time in history. The JSE all share index is looking set to deliver maybe 5% this month with most of the heavy lifting being done by resources which are supposed to be reflecting the global slow down, but obviously aren’t. Bears get only a few opportunities in a lifetime to be right and this isn’t turning out to be one of them.

The political animal is suffering from a bad plague of fleas. It is scratching incessantly at every nook and cranny on its rather mangy body. There are spats, disagreements, protests, and accusations breaking out everywhere. And the students have yet to reconvene for the new academic year and get their nonsense under way. It’s a noisy mess. Some of the fights are inter-ministry affairs where the bad news is that if the squabble ends up in court, the lawyer’s fee notes for both sides are sent to the yax-payer.  Jaw-dropping claims and assertions abound, with perhaps the week’s best being that Minister Faith Muthambi’s  “… record of delivery in digital migration speaks for itself”. Now South Africa is already 18 months past the internationally agreed deadline for this process, so maybe it’s time for Faith to change the record.

As usual the details of all these issues are complicated and assuredly we never get to hear the full story. Nevertheless, on available information, there are two particularly interesting and worrying battles to watch at present. The most recent is the claim by some mining houses that the Mineral Resources department is unreasonable in the exercise of its powers to close mines in response to certain safety issues. So far claims for revenue lost due to vexatious closures amount to a few tens of millions of rand. But government has no intention of coughing up even that relatively small amount of money, so this will probably be another bonanza for the lawyers.

And then SASSA, the state agency responsible for the monthly distribution of the critically important social grants is bickering with …. well, itself!  If this state cash hand-out program were to collapse for even one month the consequences would be dreadful. Despite many of the inevitable “consultations with stake holders” and the “appointment of task teams” there is widespread doubt that the transfer of this huge practical task from the privately-owned Cash Paymaster Services (considered now to be unsuitable) to SASSA itself will be seamless. Bluntly put there are around 17 million “customers” for this service and who knows how many pay points. Even the slickest profit-incentivised organisation (which SASSA is clearly not) would battle with that switch over. April 1^st may be more than All Fools day on the SA calendar.

The poor standard of maths in our schools is showing up in our limited over cricket performance. The rather vital statistic of runs per over seems a bit of a challenge for lads unaccustomed to long division. Choosing the best 11 players is also proving to be difficult for our national selectors. At times their meetings appear to nothing more than taking slips of paper out of a hat that is filled with names of anyone who has been on a cricket field in the last dozen years. From beating the Aussies at home the Proteas have fallen a long way in a short time.

The news is that ‘bok coach, Allister Coetzee could be fired next week. Bafana Bafana (the soccer ‘boks) fired their boss last month. Maybe the two could swap jobs. Neither side could do any worse than they have managed recently.

James Greener

Friday 27^th January 2017

SOME DON’T LIKE IT HOT

In a few hours, the hoopla will be over and the chair in the Oval Office will have been adjusted for a much larger frame. Now comes the hard part and the markets will be the first to signal public reaction to how the new president is doing, Keep a very keen eye on that US ten-year bond yield in the coming weeks. If it starts to shoot up the verdict is bad.

Meanwhile back home a rather less sensitive indicator is nevertheless starting to signal that the Zuma government is getting into difficulties. Tax revenues are slowing down sharply.This is a new and very worrying development. The 12-month deficit is approaching R200bn compared to the budgeted R154bn. Those fancy #Feesmustfall hash tags are going to be disappointed.

It’s all turning very messy rather quickly. Most of it is very old news but now the events are being revisited in a sea of confusion, bad grammar and indignant vengeance, all fuelled by the vain expectation that the state might be able to get its hands on some sorely needed cash (see above). More than two dozen years ago, the now very extinct Trust Bank was doing what badly run banks have done through the ages. It was lending money to people who were never going to be capable of paying it back. So when Trust Bank’s inevitable sticky end approached, the government, very mindful that many of the bank’s owners (in itself a messy story) and clients were Nationalist Party supporters, made the foolish and probably illegal decision to launch the infamous “lifeboat”. Taxpayers money was loaned to the ailing bank at a very low rate on the condition that it be used to buy much higher yielding government bonds and other instruments. The capital amount was probably therefore never at risk, but the net interest flow was from the lender (the government) to the borrower (Trust Bank). An interesting early example of negative interest rates.

Just what became of the “lifeboat”, and what its potential recovery value to the state might be has long concerned the curious. In particular, the rash of bank amalgamations that have taken place since those days have complicated the task for at least four investigations into the mystery. The now leaked Public Protector’s is just the latest attempt to follow the money. One investigation even was carried out by a commercial British outfit, who as well as charging a very large upfront fee in pounds, got the new government to agree to pay as much as 10% commission on any “recovered” funds. Fortunately, it seems they recovered nothing, not least because ABSA, which undeniably is a distant descendant of Trust Bank, strenuously insist that they acquired no liabilities arising from that particular wreck. The cold fact is that the money – actually now in today’s terms a rather modest amount – is gone. Yet another memorial to every government’s desire to carry out political allocation of assets.

And now the latest banking mess is just starting to sprout shoots. Following the 2008 financial crisis our regulators were delighted to adopt so-called international best practice which it was claimed would ensure that such things never happened again. FICA was born and box-ticking compliance officers appeared on the scene. Since then there has been no obvious decrease in financial frauds but repositories have been filled with useless certified copies of every document a client could produce (and several they couldn’t!). Sensible prudent organisations had long practiced a far more personal “know your client” policy which was far friendlier and also quite good at spotting risk. Amusingly, however, the FICA axe has recently been wielded to deny banking facilities for a family of Number One’s special friends which the banks claim is dodgy. But no problem.  Friends of the friends may have tracked down a South African banking licence which is for sale and so JZ’s mates may soon be back in the game. Watch that space.

Two puzzles today. What really is happening with AB de Villiers? Will he ever again play for the Proteas? And when will the Aussies grasp that Open doesn’t have to mean no roof on the stadium. Those tennis players are really tough.

James Greener

USA President Trump Inauguration Day 2017