LATE CUTS

Compared to many other share markets in March, the JSE offered a very pedestrian performance with the All Share index leaking just 2% or so. Elsewhere there have been some spectacular moves, mostly to the upside with the US being particularly strong. Despite history suggesting otherwise, investors seem convinced that great returns are possible from current levels. Bearish pundits – who frankly don’t know either – are muttering about bubbles and such like. The next few months leading to the US presidential elections will be full of surprises. The present incumbent has already been overheard begging the Russians not to rock the diplomatic boats at least until his next term begins. And Fed Governor Bernanke has reiterated that the price of money will remain near zero for simply ages more. The message is that voters and investors have nothing to worry about.

The flies in the ointment however, are all the mining and resources stocks which lost plenty of ground this month. The JSE’s top ten market capitalisation losers this month are all in those sectors. The feeling is that China’s appetite for raw materials might be waning but the data reliability on this matter is questionable. Fortunately, solid gains were recorded by booze and fag sellers with cell phones (at least those not involved in some strange squabble with the Turks) and luxury gee-gaws also doing well.

The constant thread running through almost every report from local business is just how unfriendly and antagonistic the legislation and the regulators are becoming towards anyone trying to produce a service or goods for a profit. An analysis has shown that, on average, owners now earn less than employees. Presumably this result is a consequence of weird distributions of both data sets. Nevertheless it is clear that risk takers – most of who work as hard to keep their businesses afloat as they do to meet the endless list of government demands and regulation – are an endangered species.

From this desk I can watch the traffic on the coastal highway out of Durban. There is not a lot up this road that any politician could vaguely claim required their urgent presence; unless of course, they were going to lunch or a round of golf or perhaps to buy a present for someone special. Nevertheless, several times a day a wailing cavalcade of fancy cars speeds along this road in a blizzard of flashing blue lights. The only reason for their obvious and objectionably dangerous haste must be that they are late for something. Something which almost certainly involves merely speeches and catering. We must therefore conclude that both the panjandrum and his minders are utterly useless at organising a diary and we ought to signify our concern and advice for them at this shortcoming with some suitable hand signals that we can use as they zip past. How about a pair of splayed fingers to represent the space that should be left between diary entries?  Or a single extended finger to suggest that only one person ought to be in charge of making appointments.

Our own president joined a horde of other mystified heads of state at a global knees-up in South Korea to discuss “Nuclear Security”. Few of the suits had many clues what this was about but all agreed that we need lots of it and that “great vigilance was necessary”.  Our own chap dutifully delivered a speech during a so-called Working Dinner. Obviously this was written by someone also not too clear about what an insecure nucleus might be, but no one was listening anyway being much more concerned with the origin of various meats on the buffet.

With neither the Lions nor the Sharks yet able to play effective rugby for long enough to win their games, the Super 15 season has started badly for me. It will, however, be a lot of fun watching the Newlands crowd’s reaction to the Bulls’ new pink strip tomorrow. What do you think tonight’s one-off T20 with India at the Wanderers is for? Money, obviously, is the first answer; presumably to tide the administrators over until they claw back the bonuses from the fellows who nicked the last lot.

James Greener

30^th March 2012

BEAR SIGHTED IN THE BOND MARKETS

 Slowly it is dawning on investors that lending money to the US government at 2%pa may not be so smart. Interest rates there – and elsewhere, including SA – are moving up and this might be the most important and significant indicator of the moment. As rates increase, the value of bond investments fall and among the notable investors in US Treasuries are the Chinese and the US’s own central bank – the Federal Reserve. The misleadingly named Quantitative Easing program required the Fed to buy US government bonds – lots and lots of them – and it must be alarming to watch the value of these things sink. The Chinese will also not be thrilled, although they did do much of their buying a few years ago when rates were higher, but another story of the week is that maybe economic data from that country are not as trustworthy as is normally expected when making investment decisions.

It seems that fewer than 400 out of the 2800 people who the tax man has identified as being the “super rich” of SA have bothered to register as tax payers. Reportedly, the criterion for this classification is income of at least R7m or assets of R75m. A swift calculation based on these numbers suggests that Minister Gordhan is forgoing around R10bn a year in tax collections from this secretive band of evaders. This is a big number and well worth pursuing not only for reasons of fairness. However, the pledge to hunt down and scalp these folk is heard every few years and obviously fails to have much success. Undoubtedly the cash economy is absolutely huge and much of it is simply not recorded in the usual formal records. A good example of this is the large discrepancy in employment figures provided by the official statisticians at Stats SA and those published by private sector analysts who mine and interpret all kinds of alternative data sources. The analysts doubt the Stats SA figure of only 8.4m employed, earning a total of R364bn a year and maintain that both are too low. Why does this better news draw such bitter rebuttals? Does it not suit government policy?

Even the Economist magazine believes that recovery is taking place, especially in the USA. A common conclusion from this view is that equity prices have upside since growth is therefore on the way. Another spur for share prices in the US might be the migration of investment from the now unattractive bond market. Neither argument has a proven track record, however.

In SA a big impediment to growth is the terrifying rise in officially regulated and administered costs. An unusually long car trip over the public holiday provided this insular and sedentary scribe with a sharp reminder of fuel and toll prices. Many JSE listed companies have complained about the cost of transport and when those looming toll gantries around Joburg get fired up next month, matters are only going to get worse. Inflation is unlikely to slow down, despite the excitement about the recent tiny downtick, which was hailed by overexcited analysts as proof that there is no need for Governor Marcus to wear her rate-raising raiment next Thursday.

An interesting fact has emerged from the toll versus fuel levy debate about how to pay for all those new roads in Gauteng. Seemingly there is no regulatory means to earmark specific revenue for allocation to specific expenditure. All government money gets dumped into the kitty from where a separate exercise allocates and spends it. This therefore exposes as false those political threats and promises to impose taxes on the pleasures and enjoyments of the rich in order to compensate for the woes and hardships of the poor. So the increased duty on Johnny Walker Blue Whisky can not be used to repair a broken water pump in a rural slum. More likely the money will be used to restock the minibar in the presidential jet.

Like the early start GP races, it is hard to get excited about cricket tests that begin before dawn. Nevertheless the NZ series is helping to uncover some talent that will be useful when The Proteas tour England later this year. I especially like the policy of bowling on the wicket!

James Greener

23^rd March 2012

BYE LION

After the dreadfully violent wars and conflicts that dominate the Middle East regions, perhaps the next most significant events to watch are the US presidential elections and the Eurozone financial fandangles. Neither makes any sense to anyone expecting reasonable, logical and civilised behaviour from erstwhile role models for such things. Words and concepts like faith and science and honour and debt and promise and trust are being misused and devalued to the point where they convey no meaning. Similarly in one recent but small incident in our industry a big cheese has resigned from a well known investment bank with an open letter that spills the beans on the way things sometimes work in some of those businesses. Sadly I can confirm that he is not making that stuff up. Greed scores way above integrity with just enough people for the rest of us in or around this industry to feel embarrassed and uncomfortable when we admit what we do.

The bull can also see nothing to be scared of (that is the nature of bulls of course) and the All Share Index attained another new high this week, propelled there by rises in most of the top big caps. Main attention grabber, however, is the sharp up-tick in US long bond interest rates, followed somewhat by our own. No credible explanation for this behaviour has yet been offered but it is worth watching.

I am not the only commentator to be amazed by Eskom’s very relaxed acceptance of their requested 26% price rise being pared back to 16%. The CEO even remarked that this would not derail any projects or affect its financial sustainability. What? Really? My disappointment is that the regulator (who must find it hard to feel businesslike and dignified with a name like NERSA) did not look after us consumers and shoot back with a second offer of 0%. The trade  might have settled at 8% or thereabouts.

The KZN provincial government have kindly provided me with a full-colour glossy pamphlet detailing their plans for spending R83.6bn in the new fiscal year. Only R2.3bn of this sum is collected by the province itself with all the rest being distributed from National Treasury. This does, however, mean that the surprisingly modest R59million earmarked for the expenses of The Royal Household places no burden on the rest of the country. We pay for our own royalty down here.  In the scheme of things this is not a great deal of money but perhaps we should expect a bit more work from them. As long as it makes no further impact on the leopard population it would be nice if our King and his family could be persuaded to appear in traditional regalia for photo ops and other suitably harmless activities like opening stuff and waving at commoners. Travel in open horse drawn carriages would be quaint but perhaps even more disruptive to traffic than blue-light flashing car convoys.

The general secretary of an outfit that operates under the name “The Black Business Council” is very offended that it has been accused of being racist. Many of us who believe we understand language but obviously don’t understand politics are puzzled why this and several other similarly-styled organisations, with membership apparently determined by physical characteristics, are deemed appropriate, legal or indeed necessary.  The fact that the accuser is someone who would himself be eligible for membership of that very council provides an irony that we South Africans delight in and love to pour scorn and ridicule upon.

To divert attention from the fact that here in the southern hemisphere we are almost half-way down the slope towards midwinter, comes the start of the Grand Prix season. These early ones start too soon in the day to provide background noise for the post Sunday-braai snooze. Nevertheless it will be fun to see the new cars and what rule changes have been dreamed up to quell the excitement. Banning the mid-race refuelling stops was disappointing for those of us who enjoyed fuel nozzle uncertainties and the occasional pit-side conflagration. Rugby will not be mentioned this week. The Lions have a bye.

James Greener

16^th March 2012

WATCH MY BEER. I’M JUST STEPPING OUT FOR A SMOKE

The company results that are coming out here at the rump end of the December year-end reporting season appear to be somewhat less stellar than those who crowed earlier on. Some doubt has crept into the mind of the 4 month old bull calf and the All Share index sauntered off briskly below that 34 000 level. It was certainly a nice run up until then and largely missed by us bears who like to do most of their buying at historically tempting valuations. The last such opportunity was in 2009. The next one will be in…Well, who knows; but it isn’t here.

The really interesting instrument is our currency which is fast recovering from the slump it suffered in the third quarter last year. There are more buyers of rands than there are sellers and this can’t be all because folk want to collect samples of the old “Big 5” currency notes before they go extinct. Neither can lower imports versus exports be the reason as the exact reverse is happening with a vengeance. The 12 month rolling trade balance is now at a 2 year high deficit. We are sucking in the imports – largely iPads by my observations! It must be that foreigners are coming back and buying anything that isn’t nailed down. And perhaps some stuff that is.

Up in Greece meanwhile everyone is getting ready to play a round of debt swap. Whatever this means exactly, when it is finished there will still be some winners and some losers. The winners are those who pocketed the loot, no questions asked..  The losers get to lend Greece even more money. In these days where the buzz word is “sustainable” – that model doesn’t sound as if it is.

In the light of faintly hysterical and foolish waffle about SA and Nigeria fighting to be the continent’s economic giant, it is useful to note that here on the southern tip we are gently and happily showing what matters most. The two largest listed companies on the JSE are now a cigarette manufacturer (BAT) and a brewer (SAB Miller).. The days of mining and industrial behemoths dominating the Johannesburg boards are fading away in a haze of tobacco smoke and beer froth. Standard Bank, our largest financial sector share has a market cap just one third the size of SAB and Sasol, that unique and outstanding all-South African energy business, is also just one third the size of BAT. I wonder if the medical sector is undervalued?

An important election looms for us South Africans. It is to choose the Team SA mascot for the London Olympics. Cast your ballot by magazine and cell phone. Isn’t democracy wonderful? Once that is out of the way, an even more worrying matter is the design of the opening ceremony outfits. The committee hopes that 100 or more athletes and an unannounced but probably larger number of officials will need to be clothed. A very dodgy forecast calls for as many as a dozen medals. That too, however, is causing headaches since the committee has yet to find the R50m required for incentives for the medal winners. Apparently in 1996, gold medal winners each received a R1m present from the tax payers.  Well good luck anyway to those focussed and dedicated souls who are putting their all into qualifying in their chosen sports. You are welcome to anything you can wring out of National Treasury. Most of the rest of us cant.

It is not that long since the Lions smashed the Sharks and claimed the Currie Cup, so feelings are running rather high down here in the kingdom as the two sides meet in the Super rugby fixture this weekend. My Christmas present of a Lions Cap will get its first official outing and based on what I saw at Newlands last week the Sharks are set for a hat trick of losses. I may have to buy my own drinks at the bowling club this evening.

James Greener

9^th March 2012