SEND US YOUR MONEY

Minister Pravin Gordhan must be one of the finest finance ministers anywhere on the planet. He is probably the best that this country has ever had. He is startlingly free of any political waffle and spin. His budget this week was undoubtedly savage but undeniably focussed on where the money is. Unsurprisingly the writer and the readers of this letter are among his targets and are now dolefully contemplating a future where we will all pay more tax and try to drink less booze.  Minister Gordhan appears to be unaffected by the ranting redistribution rhetoric of his colleagues and simply accepts that only some people can afford to contribute but that encouragingly that cohort is growing. He may be a tad naïve, however, to claim that SA’s culture of tax compliance is way better than “the Mediterranean nations”.  His intelligent and pragmatic approach must drive the majority of his keen communist cabinet colleagues into a frenzy bit as he explains that one can’t simply loot the bank account of anyone suspected of being too rich.

Nevertheless he has arranged for them to be able to spend over one trillion rand in the coming year  and on his own numbers this means that the state will occupy an alarming and record-setting 32.1% of the country’s economy (as measured by GDP). This is the bit that I really don’t like; especially when you see that he expects to collect in tax only R85 out of every R100 that his colleagues will get through. The balance will naturally have to be borrowed and in the coming year the interest bill on all the state’s loans amounts to R89bn which after the R152bn earmarked for Basic Education is the second largest single category of expenditure.

The budgeted borrowing amount almost exactly matches the so-called Social Protection department expenditure of R158bn. Social Protection is the kindly phrase used to describe grants to the aged, the disabled, the military veterans and the child bearers and carers. This “hand-out” of 17.5% of the tax take is a thorn in many a side but it appears that this is the only idea that the government has for eliminating poverty. It is not a very good or effective one.

So far the impact of the budget on the stock market has been surprisingly benign despite several unfriendly imposts, including increasing the dividend tax by half just before it is implemented. The Capital Gains tax increase and the forthcoming changes to the Securities Transfer Tax will definitely reduce many investors’ desire to trade. Is there any industry which these darn socialists do not want to control and set prices for?

The number of good and very good company results among the flood that were announced this week easily outweighed the poor and the disappointing. The skills that are being put to work  keeping industries and jobs ticking over and even increasing in these tough times are awesome and praiseworthy. Just imagine what would happen if those managers and owners did not have to spend so much time filling in forms, ticking boxes and hosting inspectors looking for nits to pick. Absent the cold and clammy hand of bureaucracy and things would fly so much faster and further. Unless of course you are the state owned airline which its Minister claims deserves more state support because “SAA operates in a very competitive and liberalised environment”. If that is sufficient reason to get ones hot and sticky paws on public loot then where does the queue start please minister?

At R6.4bn the recreation and culture expenditure vote is one of the smallest and yet the politicians and bureaucrats who feed at that particular trough are able to cause considerable damage and unhappiness. The conference schedule for the suits is long and punishing and little money is left over to support the actual players and performers. The SA women’s hockey team is surging brilliantly towards Olympic qualification but any second now some functionary will begin to fret about them being non-compliant with some charter or other. I don’t know how much of that budget is allocated to the fools who believe that race defines sporting proficiency, but you would think that season tickets to the Lions at Ellis Park would buy them off.

James Greener

24^th February 2012

BEWARE THE PINK BULLS

In the past six weeks or so the JSE has steadily ground its way mostly upward in steady but unspectacular fashion. Compared to most other markets, especially our so-called BRIC “peers” we have been very pedestrian, however. In what way will this resolve? In a burst of upside enthusiasm to bring us in to line? Or will we just lurk here ready to join the others when reality bites and the bear returns. Certainly there have been a number of good statistics about jobs, inflation and growth, both offshore and here. In the US a familiar bubble is inflating around the worth of two men and a dog computer program ventures that have shorter track records and fewer real assets than any paddling team currently in the “Duzi” canoe race. And the storms rage wider and stronger in euroland with almost every country there now deemed to be less able to pay its debts than a few months ago. The old adage about “neither a borrower nor a lender be.” must be gathering fans.

Have you noticed that our leaders have suddenly become quite concerned about the weather? A few weeks ago they proposed legislation that could send to prison anyone forecasting bad weather without getting official permission. Then there was a General Notice specifying a tariff for “Aviation Meteorological Services”. This seems to introduce a price for providing a weather report to any pilot of a plane above a certain size. The actual cost depends on the square root of the mass of the plane. Presumably the logic is that larger planes use slightly more of our weather than smaller ones. And this week “deputy minister Ms Rejoice Mabudafhasi together with the South African Weather Service (SAWS) has embarked on a weather awareness road show” with the theme “power our future with weather, climate and water”. Attendance is presumably free but raising money is clearly important for the department since the dear old weather bureau’s own website carries a light-hearted yet gruesome cartoon on the perils of not subscribing to their early warning system for lightning strikes. It is all rather sad as there are already plenty of free weather reports and forecasts available on the internet. Not even the “official” one is ever always correct!

The JSE has entered the investment analysis business by proclaiming that a number of listed companies are publishing reports and accounts which do not meet certain standards of accuracy, self-consistency and transparency. This is not news to professional (and probably many amateur) investors who understand that any company publication is a trade-off between concealing things from the tax-authorities, competitors and employees while revealing things that will make them look attractive and smart to shareholders and investors. If a company really told the whole unvarnished truth of what it had been doing in every dark corner of its business the investment decisions might be much easier. But life is never like that.

I have some sympathy with Telkom over the incredibly large fine imposed on them by the Competition Commission. (Another example of revenue raising?) The company is undoubtedly inefficient and corrupt but making them sell assets to meet a fine seems foolish. Telkom should sell assets only when they can no longer manage them to provide an economic return, perhaps because of regulation. Dismantling these huge government-instigated monopolies is proving tricky all over the world.

Sports teams enjoy the sometimes quite substantial income derived from the sales of replica kit. Will the Blue Bulls ever sell any of their new, hideous and dreadful zigzag patterned pink jerseys? Fortunately the blue-blooded faithful of Loftus will never have actually to witness in the flesh their team prancing about in pink as these abominations are for away games only – presumably to induce the opposition to laugh themselves out of the game. My guess is the marketing team from the supplier included several good looking young women dressed in these shirts who distracted the board long enough until the chairman signed the order.

James Greener

17^th February 2012

POPPING EVERYONE’ S BALLOONS

Most people already have a pretty good idea of the state of the nation and so had no interest last night in watching the President make more promises that have little chance of being fulfilled. Those of us who repaired to the pub instead felt vindicated by this morning’s news reports which proved as soporific as the event itself.

Have any of you fellow tax-payers had word yet from the Free State Health department about the outcome of the lab test they were about carry out on the condoms that they ordered for the ANC centenary celebrations? It was never explained why it was appropriate or even necessary for the state to provide a million of these johnnies for the party shindig in Bloemfontein. However, it was revealed that they were suspected of being substandard. Hence the scheduling of a lab test and my interest in finding out if I paid for substandard goods. Let no one accuse this place of being boring and predictable.

The Mining Indaba seems to have been rather similar to the Greek tragedy. The Principal players talked past each other while a chorus recited well known laments and commentaries in the background. The odd flickers of common sense and hope were soon extinguished by torrents of scorn and derision. Politicians remain convinced that most mining companies are generators of super profits that deserve savage taxation. The term Resource Rent Tax was bandied about. Ugh. Year after year, almost all the small cap mining shares on the JSE report losses. This strongly suggests that digging useful stuff out of the earth is a very difficult business that requires lots of capital and skills. While the state has the former (thanks to the tax payer) the country as a whole is very short of the latter and no benefit will accrue form further meddling by the bureaucrats.

It seems like a good idea. The government is going to create and operate an insurance fund that will cover the banks if their customers fail to repay their mortgage loans. Initial capital will come from the taxpayer (where else) and thereafter borrowers will pay a premium into the fund. Well, if they don’t pay their mortgages will they pay their premia? I hope the scheme works but examples of successful state interference with creditworthiness are very rare. Usually this sort of system is mostly about buying votes by getting folk into houses they really can’t afford. Fannie Mae is the delightful name of a similar scheme in the USA that has run into loads of trouble and has required oodles of taxpayer bail-out money.

Hopefully the press report has got the story about the proposed legislation on insider trading wrong. It suggests that it will be an offence for you as a broker to take an order when you know (and hopefully yourself have) an equal and opposite order in the same share at the same price. For years this “bookover” trade was a very appealing situation for a stockbroker who was thereby able to provide quick execution, create two happy clients and, of course, claim double brokerage. The latter aspect has been much eroded since “big bang” by negotiated commissions and principal trading but how on earth can it be criminal to match a buy and sell order? When will the socialists grasp that business profits generate the tax revenue that they wish to distribute to the needy (beginning, naturally, with themselves). And then there’s the rather nasty squabble about whether house prices are going down or up. Anecdotally it seems that it is quite hard to sell a house these days but usually that can be solved by dropping the price and surely there is no shortage of people in this country in need of a home?

Williams’ new F1 car has been unveiled and it appears that the left front air spoiler is sponsored by an anti-dandruff shampoo. That’s a bit low rent for a glamour sport isn’t it? Despite my interest in seeing a renaissance in Eastern Province sport, the idea that the Southern Kings could be SA’s sixth team in the Super Rugby tournament seems dodgy. Not only is the country’s talent spread even thinner but the competition will have to run until nearly Christmas time.

James Greener

10^th February 2012

LITTLE SPORT BUT LOTS OF GAMES

Of the 20 or so important local company and economic announcements and updates this week, about only three or four could be rated as disappointing. These would includes Impala’s dreadful labour debacle, Murray and Roberts’ sizable rights issue and Eskom’s woeful attempt to put a positive spin on the fact that their planning remains dreadful and power shortages are likely. The top good news item would probably be Sasol’s update that their earnings will be nearly double last year’s figure. It is not hard to see why the bulls have been prancing about around goring great big holes in the 34 000 All Share ceiling. I still don’t recommend a full-on buying program but it is probably a time to reduce liquidity levels a bit. (Translation: if you have lots of cash on hand, buy some shares with some of it.) (Wealth Warning: Whenever a life-long bear says buy there is probably something really bad about to happen!)

The sort of bad things to fear would be statements from the likes of Minster Shibangu who castigated the country’s mining companies with being “obsessed with a bottom line approach at the expense of national objectives…” This obsession, which creates wealth and jobs, is  far less dangerous than the government’s obsessive loathing of the business (and incidentally tax-paying) sector.

Internationally the fascinating news was the planned IPO for Facebook. What is little more really than a computer program that allows people to tell the world about themselves has created a very deep and valuable mine of personal data about tens of millions of individuals. It seems this mine may now be worth around $100bn. That’s a lot. The actual listing of that share in New York later this year could well be one of the more entertaining rocket launches of the season now that the Shuttle has flown its last.

The headline that said some accountants were going to introduce an “Insomnia Index” at the forthcoming Mining Indaba was quite misleading. What seemed like a brilliant idea for scoring speakers on their potential for sending the audience to sleep, turned out to be a much less fun attempt to identify which latest government stupidity was most likely to keep managers awake at night. Pity. I stopped going to conferences when my personal Insomnia Index fell to zero the moment anyone dimmed the lights and clicked onto the first Power Point slide.

South Africa’s candidate for the top job at the African Union failed to win a majority and her staff came up with an ingenious excuse for why this was just as good as winning. I was more interested in the surroundings in which all this was taking place. The Chinese have very kindly and generously presented the continent with a $200m glass and marble palace in which to hold their deliberations. African officials insist that they were not being manipulated by the Chinese. Oh really? Just try selling your minerals to our other new best friends in the BRIC.

Even if SA does not get to host the Square Kilometre radio telescope Array, there is really exciting news from the fellows at Joburg City Power. They are planning to use “low pressure solar water”. Sadly I will never learn exactly what this scientific revolution is since the explanatory document for persons wishing to tender for the supply and installation of this wonder costs R2000 (non-refundable) One would have hoped that the discovery of water on the sun would have raised more interest.

At least more than the African Cup of Nations is raising. How’s that idea for a white card in rugby ?

James Greener

3^rd February 2012