There was great excitement when the USA announced that growth in the third quarter was a stunning 3.5%. Importantly, this number was even better than expected and so it was “off to the races for the bulls”. Untroubled by concerns of valuation and similar dismissible nonsense, buyers must be sure that any shares they buy now will be sold shortly at a much higher price to someone even more optimistic than themselves. Bears and sceptics immediately began to dissect this growth figure, pointing to the very large impact that various government stimulus packages had made on the result. Since that was the object of the official interventions, the designers and supporters of the packages must be delighted.
In SA we watched the new Finance Minister do quite a good job of telling it like it is. However, despite declaring that he was no longer a communist, Minister Gordhan threatened to raise tax rates if growth alone did not see more money flowing into the state coffers. It is never explained why tax eaters are not subject to the same economic laws of supply and demand that so obviously affect tax payers. If income fails to meet expenditure, do what the rest of us do and slim down. Try shutting whole departments, like sport and arts and culture for starters and getting the rest to stop harassing their clients with annoying, counterproductive and demonstrably useless procedures. Why for example should it be necessary for the Minister of Basic Education to have an advisor who declares that “(school) syllabi would be a clear statement of what teachers needed to teach.”! Is this something new? Does the minister not already know this?
However, the Minister did announce some further relaxation in foreign exchange controls and gave citizens more freedom to make investment decisions. Regulations are now at the point where most ordinary people will be able to move much of their money wherever they like – provided of course that the taxman agrees. The announcement did cause a small weakening of the currency but nevertheless the rand has still been one of the best places to keep one’s wealth in the last twelve months. Anyone with what might now be termed Malema Money in a Swiss account also now has to worry about the gnomes telling the world about their hidden hoard. This turnaround in what we all took to be national characteristics of secrecy and confidentiality is amazing.
Any attempt to offset the huge increases in the electricity price with solar water heaters has been frustrated down here in the kingdom of late as the sun has rarely shone. That means that the meter has been clicking over at an alarming pace. Therefore it is very worrying to read that the Eskom boss is being encouraged to resign. It is not that he will be a loss to the business but it is the cost of his departure that is the problem. I doubt he will go with just a gold watch, some kind but insincere words and a paper cup of something warm and sparkling in the board room. A cheque with seven or even eight digits is not an uncommon memento after a couple of years warming the executive leather. The exit package could easily add another few percent on the next hike.
October performance on the JSE will be around a very useful 6% - an embarrassing result for those of us who wondered if an October correction might happen. Some shares and indices are approaching the records set a year ago. It has been an astounding recovery, based presumably on the view that the current slump in company earnings and cuts in dividends will be reversed and recovered within the next 12 months. Now that will be even more astounding.
There was a quite spectacular test of the lights in the new World Cup soccer stadium last night which only highlighted the darkness at Kings Park rugby stadium next door. Pubs will probably be offering cheap beer tomorrow just to get me in to watch the Bulls lift the Currie Cup. Sharks supporters have gone fishing.
James Greener
30th October 2009.
