The USA’s
financial and political whizz-kids have managed to delay yet again an
aggressive attempt to get their government to spend less and tax more.
Regardless of the positive impact that might have in reducing the deficit, it
was feared the adjustments would plunge the nation over a fiscal cliff and back
into recession, After acrimonious and lengthy debate, an 11th hour
decision to replace the plans with a much gentler program unleashed a raging
bull market in share prices that lifted our own All Share index to over 40 000
points. Just why this American decision was such good news for company earnings
in SA has yet to be explained. But the failure to tackle the deficit in a
serious and meaningful way unavoidably brings much closer the moment when the US government
total debt will bump up against the so-called Debt Ceiling. This is another
event which causes all-night meetings and loud shouting and brinkmanship. But inevitably
there will be another last minute decision and the Ceiling will be raised.
There actually is no alternative. But the debt remains the elephant in the
room.
The fellows in Washington
perform these rituals frequently and indeed they can go on doing it almost for
ever. Or at least until the folk who are lending the US the money to feed Jumbo
become concerned that the interest they are being paid is actually their own
money coming straight back to them after passing through the pachyderm. Normally the scam of getting later investors
to fund the returns being enjoyed by those who were earlier to the party is
called a Ponzi scheme. But the US
government’s version of this game is now so large and self-propelling that no
one has the courage to call time-out and say that they no longer wish to play
and please can they have all their money back. They know it can’t happen.
Simply put, the idea of the USA
defaulting on its debt is unthinkable.
And it seems that so is the possibility that a bear market can ever
happen again.
At 26.7% the All Share’s performance in 2012 was way better than the
long term average of 21% and the best year for returns since 2006. This
happened even with the Basic Material sector delivering just 5.4% and was
driven largely by the two consumer groups (goods and services) both of which
easily exceeded 40% for the year. Even the banks did 35% during 2012.
The government’s threat to get tough with tax advisers is yet
another response born out of the completely erroneous belief that taxpayers
willingly contribute to the fiscus because they like to see the state spend
their money for them. Bureaucrats can’t seem to accept that people pay only as
much tax as is necessary to stay out of jail and any advice that costs less
than the tax saved is worthwhile.
Amid a welter of foolish self congratulation by people who actually
had very little to do with it, about three quarters of last year’s school
leavers were told that they had passed the final exams. Here in KZN that
translated into 47 newspaper pages of results which immediately triggered the
thought: Where on earth are all these kids going to find either further
training or employment? The local provincial head of education seized on the
improvement in pass rate as an excuse to “throw a big party” but one wonders
who would be invited as none of the teachers or pupils that I know seem to have
been. I do know who will pay, however. I hope but doubt that any political
decision-makers are as worried as I am by that very long list of names and the huge
difficulties most of them will face in order to fulfil their potential in the
systems we have created for them.
The first test against the Black Caps has just come to a very
satisfactory conclusion. One commentator explained that there is only a small
pool of blokes in those cold islands from which to pick a team. That’s a
pathetic excuse. From the same pool they find a team four men larger that beats
everyone at rugby.
James Greener
First Friday of January 2013
