AND DON’T EVEN MENTION THE RUSSIANS

Minister Gigaba told us very little that we did not already know about the poor shape of the government’s finances. However, his unusual approach was actually to say as much and while he has been praised mightily for this, the market reaction has been severe. The prices of South African bonds and currency have plummeted. Those among us who over the past few years have been able to send a few sacks of cash to Dubai for safekeeping with our mates are probably feeling very relieved and smug. The frustrating but telling thing, however, is that all the hand wringing has been directed at the failure of the income side of the budget to live up to expectation. Not very much at all has been said about the expenditure side of the equation. Given that there really are few untapped sources of significant tax revenue left it is obvious that the axe must be taken to the spending.

Some astonishing charts have been published highlighting just how much higher almost all public-sector salaries are, compared to private sector pay. Multiply this by the massive increase in the number of state employees and to the casual observer, not needing to influence voters, it seems obvious what needs to be done. Understandably any threat to their jobs will at the very least prompt massive strike action. And this should be met by the second leg of the program which is to make starting a business and hiring (and firing) staff so much simpler and easier. That is, create a way to soak up the talent and experience that will come onto (and is already unemployed in) the job market. But that’s two impossible things to believe on the day before the Currie Cup final.

The unwelcome consequences of deficits are debt and the cost thereof (aka interest rates). This is where the irritatingly influential ratings agencies pop up to scrounge a living, and so they are back in the news again. These analysts are no better than any others (see next story) yet because of where they work they assume unearned mantles of authority and infallibility. And because the minister offered some home truths they have (way too late) gone all angel of doom on us and are expected to downgrade South Africa yet again. The nation’s debt service cost is approaching panic station levels. It needs more than Gigaba to start talking specifics about what our government is going to do. To stop looting the public purse and dismiss all felons and thieves would be a good start and a way of sending a great message

News of an interesting competition came to light recently. Four teams of trainee investment analysts drawn from different business schools were each asked to take a close look at a listed company and decide whether to recommend a buy or a sell. Each team approached the task in a different way using both published data and hands-on investigations of the firm’s products and markets. This resulted in the perfect balance of two buy and two sell recommendations. Anyone who thinks that this lack of consensus is a sign that the students clearly have a lot more to learn from their courses, should realise that this is the norm even after graduation. Anything published by a company (which, by the way, they do only because they have to) is very carefully massaged and managed. Obviously while shareholders and creditors need to be kept happy and informed there is a competing desire to keep competitors and the taxman in the dark. Consequently, it is quite understandable that two different teams can draw conflicting conclusions. It’s the old glass half empty versus glass half full story. Oh, the company they analysed? Distribution and Warehouse Network [Dawn].

Events are such that I’ll be wearing my Sharks shirt in Franschhoek in the Western Cape at the time of the Currie Cup final that will be played the Shark Tank here in Durban tomorrow. I have asked my hosts if we will be able to watch at a Sports Pub but they are dubious if I’ll be welcome. But I have every faith in the hospitality of all South Africans even when we hoist the Cup. [Apologies to the WP supporter who was offended last week at the suggestion that the Lions might win their semi]

James Greener

Friday 27^th October 2017

SCOTCHED

Even with perfect hindsight there are many things which remain puzzling. Like why US share markets are up 25% since Donald Trump became president? According to the main stream media, Mr Trump is despised and mistrusted by everyone. Except apparently by those who believe that businesses will thrive and make money while he is in the Oval Office. Almost all valuation tools and historical comparisons indicate strongly that share prices in the US and in many other places are far too high but the buyers stubbornly don’t seem to care and are prepared to offer sellers ever higher prices.

Although on a shorter timescale even our markets too are resilient in the face of mounting evidence of Armageddon levels of corruption and larceny by nearly everyone on the state payroll.  Of course, the main indices are dominated by shares whose prices are set offshore and as we have remarked before, much of our performance is rand hedge behaviour.

Next week sees the government finance equivalent of the half-time interview when the head coach and Minister of Finance will doubtless say that the first half was tough but then it wasn’t his strategy anyway but the lads are hopeful of a big turnaround in the second half.  But Minister Gigaba’s impeccable ensemble highlights the suspicion that the government is increasingly spending far more than it is collecting. The latest information from National Treasury is that the 12-month rolling deficit has climbed to an all-time high of R210 billion. Severe squeezing of the numbers and taxpayers might just see this number fall below R200bn by the end of the government’s budget year in March. But this is still R30bn more than what previous Minister Gordhan hoped for when he delivered his last Budget eight months ago. And the most recent bail-out of SAA doesn’t yet figure in these numbers.

But why are we worried?  The boss is innumerate and far too interested in his own future to pay much attention to how the peasants are scraping along. And most of the rest of the cabinet are playing musical chairs, taking calls from Saxonwold, Dubai and Moscow and nervously checking that all the bodyguards are in place. The cabinet shuffle that scared the rand a bit confirmed that Number One has no intention of addressing either the financial or social woes of our nation. He is a very shrewd and experienced campaigner who ensures that it is he who never gets any unwelcome surprises. The news that the ANC has an Integrity Committee is astonishing, but they must be a sad and frustrated group of cadres with very low job satisfaction levels.

The South African reaction to the news that the folk at the big telescope in Sutherland had witnessed a huge accident was to watch for tow-away trucks and private ambulances speeding up the N1. Fortunately, not only was no one injured, the event took place 130 million years ago and the noise has only just reached Earth. Nevertheless, the simultaneous observation of both gravity and light signals from the collision of two neutron stars is a breath-taking scientific event and achievement.  Also in the realm of science is the news that our new Minister of Energy has an honours degree in biochemistry. He now will have to think in Megawatts rather than units a billion times smaller, but perhaps Russian roubles will be his currency of choice as he seems to have been selected by Number One to close the nuclear power station deal with Mr Putin.

It’s that time of year when the glossy ads for outrageously expensive booze drop out of the newspapers. So far, the leader is a 50-year-old Balvenie single malt whisky at R650 000 a bottle. The 40-year-old is a mere R110 000. Now it doesn’t exactly work like this but putting away a bottle of the younger one for 10 years seems to offer a handsome 17%pa return. That’s if you can keep your friends in the next decade from exploring the deep recesses of your bar cupboard once the Amarula runs out!

Currie Cup semi-finals allow for a possible Sharks vs Lions final which will once again call for the red cap and black shirt and a certain coolness in the bowling club bar. I’m also cooling off on Formula 1 which seems to have become less interesting now that Bernie has gone.

James Greener

Friday 20^th October 2017

OFF THE RADAR

There’s a piece of financial folklore that maintains that when the big news magazines feature the words Bull Market on their cover, then it signals that the bear is in the wings about to bound into centre stage. The Economist magazine’s bull is benign and decked in flowers. Oh dear. This crash is going to be really bad and central bankers the world over are going to be instructed by the politicians to do something to keep the voters happy. It will be difficult though. They have been setting the price of money so low for so long that their powder is both running out and damp. Is this what’s driving up the price of Bitcoin, the cryptocurrency which might provide refuge from government? Notably, Krugerrands are also at the year’s high. The JSE’s All Share is up almost 5% this month despite very few companies reporting that level of earnings growth.

SARS says it is satisfied with the billion rand that their Special Voluntary Disclosure Program has raised from taxpayers with previously undisclosed offshore assets. Some sources suggest they were hoping for four times that and others are wondering if they had a look under G for Gupta and Z for Zuma in the Dubai phone book. Less happy, however, are the nation’s 3 689 rated research scientists who are facing dramatic funding cuts of up to 90%. This is probably unavoidable given the extremely dire state of government finances and its expenditure commitment to salaries and social grants. It will, however, probably be the death knell for virtually all science research in South Africa.  Even some of the socialists in the cabinet should see this as a real calamity.

Durban was hit by another one of those rain-bombs this week. It came as a great surprise to everyone including the official weather forecast service who used the event to complain that some of their kit was more than a decade old and not working. It will never be known if the tragic loss of life caused by the storm could have been prevented if SAWS had the resources they say they need to do the job properly. But some of the havoc was surely due to blocked and insufficient storm water drains and exacerbated by the tendency for most of us to make poor decisions when beset by natural hazards. Even if the radio channels had been blaring timeous warnings, the desire to get home often overwhelms the need for patience and assessment.

Film makers must long for the chance to be able to make “fly-on-the-wall” documentaries during meetings of the South African Cabinet. On one side the Department of Communications is insisting that the lack of a board of directors for the SABC is not having a material effect on operations. But simultaneously National Treasury are complaining that the national broadcaster has far too many temporary executive appointments.  Then there’s the squabble about selling the state’s shareholding in Telkom to bail SAA out of its bottomless  pit of debt. Meanwhile, the police minister is inciting his staff to break the law and torture suspects and the minister of the grossly misnamed Public Service and Administration department is having a hissy fit because her staff won’t let her spend money on unbudgeted jaunts. And all of this takes place under the eye of Number One at the head of the table giggling gently. Award-winning comedy material indeed.

The sequel could be the parliamentary investigation into the controversy over upgrading Zuma’s private home at Nkandla. However, the part where the panel members each get handed a copy of the 92 000-page affidavit produced by the investigators might get a bit tedious. Ink and paper suppliers to parliament are surely planning bumper Christmas bonuses.

The news that the T20 Global League project has collapsed is probably the first time that most of us have bothered to find out what it was supposed to be. Apparently, this pet project of Haroon Lorgat the recently departed CEO of Cricket SA did little more than allow him to jet around the world, seeking support which in the end he failed to do. Sadly, many sports administrators appear to devote more time to creating lucrative deals for themselves than to battling evils like match-fixing and political interference which discourage players, spectators and crucially sponsors from having mutually rewarding fun.

James Greener

Friday the 13^th October 2017