For the second time in as many years little Iceland has stirred things up. Last time a few of their banks imploded leaving depositors stranded. This time one of their volcanoes has exploded leaving air travellers stranded. For all their size they can cause big problems. But that’s often the way. Back home we have the news that tiny Alliance Mining who appeared to grow from zero to hero were actually lying about themselves and their accomplishments and are now back at zero. The recent suggestion that unlisted companies need not bother with being audited unless they so choose, is beginning to make sense. Here is yet another example where an allegedly regulated listed and audited entity vanishes before our eyes. Many years ago a Cape based investment bank published a thick and glossy annual report. Each page displayed a picture of one or more of the supremely talented executive posed alongside a piece of priceless antique furniture. On the very day that the document reached shareholders, news came of the bank’s collapse. Am I right in recalling that the auditors report was printed opposite a tasteful picture of the CFO next to an ornate Georgian commode?
The rumbling about the Greek situation was joined this week by some opening grunts about events unfolding in Portugal. However, just about the only reactions to these developments have been taking place in the associated local bond markets where interest rates moved up. The reality is that many more nations than just the PIGS are suffering from bloated and oversized governments spending more money than they can extort from their citizens. The apples begin to fall from the cart only when sufficient influential voices begin to point out the flaws and dangers being concealed with accounting tricks and politician speak.
The JSE ambled along the gently upward sloping path, occasionally lurching because of a knee jerk reaction to some or other instantly forgettable US statistic about how many non-farm houses were out of work. It is also equally unperturbed by whatever burbling inanity the local politician of the day has decided to offer as proof of his or her unsuitability for office.
Investors often complain that they don’t understand derivatives. Just think of a World Cup match ticket as a put option. The holder of a ticket has purchased from the organiser the right but not the obligation to put their rear in a specified seat at a specified time, commonly known as kick-off.. Shortly after kick-off the value of the ticket falls to zero, but at any time before that, the value will vary depending on many factors. If the organiser has misjudged the popularity of the event and it is a sell-out, the value of that ticket will probably rise. But event organisers regard secondary trading in tickets as “touting” and usually ban it with the excuse that it unfair to fans. What they are really doing is preventing others from benefiting from their misjudgement and initial pricing decision. The current multi-phased program that FIFA is using to sell World Cup tickets is a wonderful example of this. FIFA’s hugely complicated method of selecting and identifying buyers has contributed to obscuring the actual demand for the tickets and apparently half a million remain unsold. Obviously the pricing is too high and FIFA is loath to admit their misreading of the SA market. This country is one of the world leaders in on-line ticketing systems. Why the clowns at FIFA did not just hand the whole shebang over to the local chaps, must have a whole lot to do with corruption and patronage and little to do with being honest and transparent towards the paying fans. At the rate of yesterday’s maiden day of over-the-counter sales they will still be trying to sell tickets months after the final whistle. FIFA’s greed to control all the money via its agencies and other dodgy mates has unfairly and undeservedly cast a pall over the country’s own growing pride in how well it has done its part of the preparations. We are not unused to hosting stadia-loads of foreign fans pitching up to watch a game and drink some beer. Vuvuzela sales are through the roof.
Lions versus Sharks this weekend. I am going fishing.
James Greener
16th April 2010.
