As the saying goes: “My, but that escalated
quickly”. Messers Standard and Poor must have been lurking behind the door with
fingers poised over the speed dial keys. Allegedly they didn’t even wait for
April Fool’s Day but called Number One, as well as his brand new Finance
Minister, Malusi Gigaba on Friday 31st to give them the news that
they were now doubtful if this nation was either capable of – or worse still –
concerned with repaying loans. Accordingly, they (S&P) had dropped South
Africa a few notches down the ratings scale to a level below the arbitrary, but
still feared, Junk Status barrier. A short description of what this means can
be found here[1]. It was not until more than 72 hours later,
on the following Monday, that the rest of us were told the news. If this is indeed
true it raises the question of why. Inside information of that kind is
extremely valuable and we know that our president is quite prepared to profit
even when his country does not.
Except for selecting luxury cars, the
ministerial grasp of some of the more technical trappings of colonialism is often
tenuous. Minister Dlamini told the Constitutional Court that her report to them
on why she had failed to do her job was late because it was so big that the
email “bounced back”. Further comment is superfluous.
The byte as a unit of information is quite
familiar. A thousand million of them is of course a Gigabyte. The ba is obviously
a unit of ministerial ignorance and incompetence and so the Gigaba is just
perfect. Thanks so much for that, Buddy.
Commentary on the credit status downgrade
has ranged from the wise to the asinine. We have indeed been here before but
only the silver haired will recall the debt-standstill. It is not easy to climb
back up the ratings ladder and suggestions that junk status is a good thing
won’t help anyone to grasp the sacrifices that are essential if SA is to regain
financial health and achieve economic growth. The first and largest cuts should
be made in the public sector, but this is unlikely. The redistribution /
transformation mantra is already being chanted louder than ever with calls for
the punishment of the ever-diminishing tax-paying private sector being repeated
in the chorus. But Economic Freedom is at hand already. Anyone can start any
business. What is missing is Economic Literacy and the understanding that
governments consume wealth not create it.
An alarming and foolish regulatory
intervention is starting to seep across the investment industry. Naïve and
suspicious suits have noticed that certain types of institutions like stock
brokers and investment banks maintain compounds where clever people are kept
and made to do research. These so-called sell-side analysts, horror of horrors,
freely distribute their work to the clients (the buy-side). The regulators see
this practice as an inducement for clients to do business with the providers of
the research. Well yes! That’s exactly right. “But that’s wrong and evil and
akin to bribery.” say the suits. “And in future clients must pay for research”.
The axiom in our industry is that only half of the research is useful but no one
knows which half. Accordingly, clients are not going to pay very much for
something which is likely to be wrong half the time and this will probably
result in many of those analysts being told to leave the building. While it is
true that an outright forecast of an economic statistic or corporate result has
a 50% chance of being correct, the buy-side does appreciate and make use of the
deep understanding and useful contacts that good sell-side analysts have made
in their market sectors. In addition, their skills are invaluable on the other
side of the so-called Chinese wall where corporate deals are planned and
structured. Oops. Wait ‘til the busybodies find that out! Why don’t these
bureaucrats just leave us alone? In fact, it’s the state’s policing and
prosecuting systems that fail to complete the task of timeously catching and punishing
the bad guys after they are exposed by data transparency and competitors.
With anger, intolerance and mayhem threating
the nation today it seems trivial to remark that in the real world, there are
so many sports events that deserve our attention as well.
James Greener
Friday 7th April 2017
