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
23rd March 2012
