WEEKEND ESSAY TOPIC

Despite having just four working days, this week handed out quite a lot for investors to think about. The All Share Index backed off from its tentative foray above 36 000 quite sharply but then appeared to think better of its timidity. Another development is that the daily value of shares traded, is now regularly well above R15bn, A month ago days that busy were rare. Have the dreaded High Frequency Traders at last put in their threatened appearance?

 Another of the supposedly omniscient and all-powerful ratings agency last night smacked SA down a notch for its estimated credit-worthiness. Moody’s made the not unreasonable observation that the government is not actually showing any ability to control and improve the economic situation even if they can talk eloquently about what they plan to do. The timing of the downgrade is interesting. The local bond market is about to make an (infinitesimal) debut in a world index. Bond markets are more interesting than they look!

It is now well over a year since the census happened and as yet I don’t think a single result has been published. This delay speaks volumes about the process as the head-counters are obviously encountering some pretty thorny problems with their raw data. Much the same has happened over at SAA, the national state owned airline, where they are reluctant to publish the financial results for a 12 month period that began in April last year!  Most of the board have now stormed off in a huff complaining that the shareholder doesn’t care about them. On the contrary the shareholder is appalled that they have managed to lose so much money that they are not even sure how much of a bail-out they need. “Between R4bn and R6bn” is the rumoured amount. A 50% variance suggests a total lack of control of where the money is going. The shareholder must be desperately wondering who will take this very sick albatross off their hands. Noticeably, any government official who thinks they are important enough chooses a VIP charter over a seat on SAA.

Its is a great shame that the prosecutors appear to have missed most of the targets that were presented by Julius Malema’s mysterious and meteoric amassing of massive moolah. Mere money laundering is now the sole charge against the man and any politician worth the name feels that this sort of activity is a résumé requirement and not a crime. Similarly it looks as if losing one’s firearm is a necessary event before any policeman can feel part of the squad. 1200 police weapons have gone missing in the last 18 months  which somewhat highlights the near irrelevancy of  imposing ever stricter controls on those who have actually paid to own a gun and are obviously far more focussed on keeping it safe.

Not even the most optimistic and naïve believer in the notion that political institutions are a force for good can have survived the United Nations’ appointment of our president Jacob Zuma as champion of education. This supremely perverse decision indicates nothing less than stupidity and also disrespect for the people of this country who are desperate to achieve some learning. Maybe actually not having too much education should not be a barrier to such an appointment, though it is hard to argue this position. But choosing a man who represents a government that has so swiftly dragged the country to the foot of almost every global league table of literacy and numeracy is definitely wrong. We citizens should demand that every appointee to this dubious position be required to write, unaided and in their own hand an essay  of not less than 500 words on the subject:” Why I am a Champion of Education.” Marks for neatness AND spelling will be awarded.

Lions supporters are torn between the obvious need that the ‘bokke have for talented players and the difficulty of defending the top spot in the Currie Cup log without some stars. Nevertheless it has been fun up to now. Who thought the monsoon season was a good time for a cricket tournament in Sri Lanka? What sense does an innings of just seven overs make?

James Greener

28^th September 2012

HOW MUCH IS THAT JOB IN THE WINDOW?

The task of finding value in the share market has been made a lot harder by the understandably desperate but significantly above range wage settlement offered by the beleaguered Lonmin mining house this week. Undoubtedly the operations of this company are going to be severely affected by this settlement and hardships will likely follow. Workers elsewhere and not just in the mining industry have noted the 22% figure and expectations are surely being reset. Living costs feel as if they have surged far more than the rather benign 5%pa suggested by the CPI.. Investors are nervous about what a settlement like this will do for earnings. It is not a good time to bet the farm.

The worthies attending the Monetary Policy Committee meeting in Pretoria this week were apparently about to consider reducing the price of money by 50 basis points (i.e. cutting the repo rate by half a percent) when the tea lady appeared with an extra packet of chocolate digestives. In a flash, while someone was tearing off cellophane, it was agreed to leave the rate unchanged, downgrade the estimate of GDP growth for this year and next and send. Governor Marcus out to tell the press. She retuned to an empty committee room and crumbs.

All over the world low administered interest rates do not seem to be having the desired effect of encouraging people to borrow money and spend it. Rather, individuals and even businesses appear still to be focussed on reducing their debt. This sort of behaviour is unfamiliar to bureaucrats and officials for whom the economy means spending other people’s money and then borrowing more to support their habit. The sad and ironic part of this situation is the reluctance of everyone to recognise that more of what got us into this mess is unlikely to get us out of it.

We bears wonder, when or indeed if, there will be a time when the absurd overvaluation of intangible entities such as fiat currencies, intellectual capital and counterproductive bureaucracies will be recognised. Certainly the dignity of manual labour is a filthy myth but it would be interesting to see what would happen if supply and demand could be allowed to find the level of remuneration for tasks such as doing some one’s ironing or running a near-monopoly fixed-line telecoms company into the ground. In term of value to customers those two pay scales ought to be nearly equal. While many of the current reams of labour legislation need to be scrapped there is also a crying need for the meaning of the phrase “performance bonus” to be defined and enforced.

It was announced that the president’s basic salary will now be R218 546 per month. Not only is this a rather odd number but after tax it must be a real struggle to keep the uxorial entourage in dresses and lipsticks No wonder we are unable to attract any real managerial skills into applying for the job and it looks as if the Bloemfontein conference will have no choice but to grant JZ a second term. After all, one of the possible alternative candidates was spotted paying around R18m for a buffalo recently – that’s not going to be easy on a presidential salary. Unless of course he can work something out with the so-called “spousal support unit”.

Finance Minster Gordhan and his investment industry regulators are rightly concerned about “rogue investment advice”. While I definitely agree that advising people to put their hard earned savings into black holes is despicable I would suggest that the regulators are naïve to expect to see marketing material which contains many hard facts mainly because this is a business that is pretty short of those sorts of things when it comes to what is going to happen. About the only certainty for savers is that any profits, gains or income they might score will definitely attract the attention of Mr Gordhan’s tax collectors.

The mood at the bowling club will be tense this evening as tomorrow’s Currie Cup fixture between the Golden Lions and Sharks looms. The result is obvious.

James Greener

Vernal Equinox  2012

BULL POWER

Take that! This morning the bull put on one of his all time best ever displays of leaping and towed the All Share index over 36 000 in a single bound. This has been caused almost entirely by a heroic recovery of the mining sector shares as investors apparently realise that their earlier fears for that industry were utterly misplaced. Many analysts are attributing the change of heart to the launch in the US yesterday of the good ship QE3. This was the announcement by Governor Bernanke of a third (actually fourth) round of sending other people’s money to areas of the economy which, some very wise people have decided, are in need of more cash.  It is once again disappointing to watch as the world’s leading capitalist economies insist that central planning will work better than markets at allocating resources. But hey, we are getting one hell of a powerful bull market out of it.

In fact Public Enterprises Minister Gigaba seems to be justified in his confidence that investors are not in the least concerned with developments on the nation’s mines. This, he claims, is because it is well known that the country has a “very solid” Constitution and a proven record of conflict resolution and that further “…investors are confident that we have the necessary leadership with requisite skills and experience to rein in the situation.” Sadly any sign of these skills are not evident as the strike seems to escalating to all types of mines all over the country.  As always, the specifics of the demands are complex and it is difficult for outsiders to put amounts like R12 500 into context. However a restaurant in Cape Town is willing to offer R5500 to suitably experienced Chinese Cuisine Chefs. It certainly feels as if one of these numbers is out of line.

For several years now the JSE has believed it wields a mighty weapon over the newspaper industry in that it had the power to reduce significantly the demand for advertising space that arises from the JSE rule that requires every listed company to publish its half-yearly results in the press. That rule is about to be rescinded on the reasonable assumption that there are no significant shareholders (and presumably not a single company) without access to the internet. The fact that so many companies currently publish their results in lavish multi-colour spreads far more detailed than they are obliged to, shows that they view this six-monthly exercise as important for their communications strategy and general public awareness. They will very likely continue this practice well after the rule disappears and the newspapers may breathe a little easier. Websites and emails in fact are cumbersome tools for capturing attention and presenting financial information. Analysts always prefer to use the newspaper versions. The JSE should, however, be concerned about the companies that will be only too keen to vanish from the press. These are the firms that will issue only the occasional impenetrable slab of words and numbers via SENS – the official electronic channel – and which may well have something to hide. The small private investors will be the most likely victim of the resulting opacity since analysts and journalists will also not bother to dig around in the murk.

Patrick Lambie must have been on the line to his mom several times in the last few weeks asking her to check the family tree to see if there is any way he could claim citizenship of another country and offer them his services on the international rugby field. Warming the bench as we accept yet another hiding from the likes of the Wallabies and the Pumas is not entertaining and he is undoubtedly very frustrated. Fortunately I have been invited to a breakfast to watch tomorrow’s game against the All Blacks and so I intend to bury my nose in a large helping of scrambled eggs and attempt to avoid the TV screen. I will be well clear of the plate by the time of the Cheetahs Lions match however.

James Greener

14^th September 2012

THIS TIME THE PLAN WILL WORK. PROMISE

 European Central Bank president Mario Draghi delivered a speech yesterday that seems to have convinced some folk that he knew exactly how to cure the euro zone currency woes. The plan goes like this. Any government in the zone that is short of cash either because it is spending too much or not collecting enough tax (and usually both) simply prints up some bonds (IOUs) and good ol’ Mario will buy them with actual euros and bingo, the cash shortage vanishes. Where the fresh new euros would come from was not explained but presumably a call to German Chancellor Angela Merkel may be required. The flaw in the plan, however, is the presumption that between now and the time when the IOUs become due (up to three years away) the nearly bankrupt governments and their citizen will adopt polices and attitudes quite different from the ones they currently have, and which got them into this mess in the first place. This seems very unlikely since everyone’s experience is that each absolutely last and final bail-out is seamlessly followed by another and no change in policy or attitude is necessary. The game goes on until the Germans no longer answer their phone.

Not everyone, however, is sure that it will all turn out OK and demand for gold pushed its price over $1700 an ounce for a spell. Until the rand clawed back a bit of ground, this caused the rand price of the metal to sniff out the high ground and both Krugerrands and the Newgold ETF enjoyed a fun week. The All Share also displayed a substantial bounce and re-establishing its assault on 36 000. Mind you, just because an index level contains a lot of zeros the market is utterly unconcerned and there’s no telling what it will do thereafter.

There is, it seems, a housing crisis in our royal household. The king’s sixth wife is being forced to share digs with another queen and this, all agree, is unsatisfactory. Fortunately a solution has been identified but it will require tax payers to stump up a further R18m. Palaces are not cheap. In addition to this unbudgeted item, officials responsible for the royal moolah note that the family holds customary functions which can not be planned for and which also have a devastating effect on the budget. Presumably this means they have big parties. Officials have been busy establishing “best practice in other parts of the world” (I’ll bet) and are toying with the idea of opening the palaces to tourists. What a splendid idea. Mind you at even R100 a head it is going to take a very big number of tourists trekking up to Zululand to rubberneck around the king’s quarters before they can comfortably call in the architects.

Those who braved the rain and drove to Durban docks to visit the Rainbow Warrior – the vessel operated by the environmental pressure group Greenpeace – were startled when harbour security insisted that the driver take a breathalyser test. Now these brave greenies have had some very unpleasant incidents previously with contra radicals attacking them and their boat, but why they felt safer in the knowledge that each driver (no passengers were tested) was sober was not explained. The activists told visitors that their target in South Africa is to oppose the plan to build and operate more nuclear fuelled power stations. Now that the triviality, inefficiency and negative environmental impact of wind power is belatedly being recognised and discussed and coal is such a big no no, does Greenpeace want us to return to the dark ages?

The ‘bok rubber hits the road tomorrow morning when they meet the Wallabies in Perth. People of a nervous disposition should maybe not watch. And the Lions look as if they are going to get to the Currie Cup the long way round. That partnership between Amla and AB at Trent Bridge to square the ODI series was pure magic. It would have been lots better if had been to win the series though.

James Greener

7^th September 2012.