ASYLUM IS NOT FOR SISSIES

Negative interest rates are an odd concept. Deposit money in the bank and once a month the bank charges interest, which they deduct from the deposit so now the deposit is less than before. If this goes on for long enough the deposit falls to zero. Not a good investment idea. In some places commercial banks are now being charged negative interest on certain funds that they have on deposit at the central bank. The powers that be hope that this penalty will encourage the banks to take up a sort of reverse crime and anti-mug their clients by stuffing folding money into their purses and wallets. The next step of the plan calls for the bank clients to return to their old habits and become consumers once again. But that is not what is happening. People are paying off debts and building up savings instead of spending. Large and chunky spanners are appearing in the works.

Almost all indicators of growth are still getting worse, although in some cases at a slower rate. As I write, the talking heads on the screens are getting very excited by a US data release about how many jobs were lost last month. Whether the number was better or worse than expected tells us no more than that the expectations were wrong! The real point is that fewer people are at work in productive jobs and it may be a long time before that situation reverses. It will be even longer before the situation regains the old peaks. Investment bears like myself are pretty sure that the time is coming when the markets realise that they are priced for an altogether much happier and quicker outcome than is actually taking place and they need to go through a big correction again.

The Handbook that reportedly allows for a minister to spend upwards of a million rand each on a brace of cars is in dire need of revision. The current tax regime ensures that most ordinary folk have to fund their own wheels, so why not a cabinet minister. By all means have a smart landau and four round at the state stables for the odd ceremonial jaunt where you want to expose yourself and your guests to the exciting sights, sounds and smells of an African city. But for tooling over to the ministry from home (also state provided) why not one of these Rea Vaya things or maybe a Corolla that you can wash in the driveway at weekends? Only when, as they all claim, their meagre packages expose them to temptation of being lured away from the sweat and toils of public service, should they experience the joy of true executive travel, including charter jets that do not run short of fuel. What exactly happened there in the DRC to our Dep. Pres. Coming back from a junket in Libya? Did the Colonel refuse to accept the national petrocard?

Forget the Niagara Falls. The Canadians have opened a much bigger deluge. What’s the saying about lunatics running the asylum? That Brandon Huntley chap has found one warming a chair up there in the 51^st state  who clearly had little clue about where or what South Africa is. I’ll bet he is finding out now. The courier services have had to lay on extra flights to Toronto to handle the applications that are pouring in from the southern tip. Not mine though. I have seen the photos of the thermometers pointing at the big negative numbers and think I’ll stay here in the kingdom thanks. It was well over 30 degrees here on Tuesday. But maybe what we are seeing is a ploy that will allow Canada to field a rather more threatening rugby team at the next world cup and someone who will understand Victor’s line-out calls.

I am a bit alarmed by the rather boastful claims about sheer perfection that are coming from the ‘bokke camp. Let’s wait for the clean sweep chaps, before getting that cocky.

James Greener

4^th September 2009.

NOTES FROM GAUTENG

So it is good bye to August and the Soccer World Cup 2010 draws ever closer. Or it might do if it could get on board the busses that have been planned for it. The uproar that has broken out about the plans that have been made for this segment of public transport is getting really ugly and the world is watching with alarm. Bullets are about to replace the insults flying about. About the only common ground between the antagonists would appear to be the emergency lanes and central reservations which the taxis have long regarded as part of the road network anyway.

It is also goodbye to the 25 000 All Share level as the bull runs wild and the streets named prudence and caution and value are renamed foolhardy, bravado and speculate. My view that they were also cul de sacs is turning out very wrong. The market is now far closer to revisiting the all time highs (33 300) than testing the most recent lows (17 700). I am baffled and embarrassed but not convinced.

I have spent a day back in the dealing room and it has been wonderful to be surrounded by colleagues again and to hear the gossip and rumours. However, I am alarmed to be reminded how closely watched is the stream of almost meaningless numbers and definitely useless opinions that pour out of the screens dotted around the room. The defence is of course that every other dealing room is also watching the same gibberish and knee jerks need to be co-ordinated. Unsynchronised swimming is not pretty.

In an obvious fit of jealously and pique a regulatory suit in London has labelled some of the activity that goes on in the halls of banking and finance as “Socially Useless” and has proposed that taxes be levied on the profits so obtained. Presumably he believes that there are other folk who could spend the money in a socially useful manner. I would be interested to know what he believes that would be. Is he unaware for example that the workers at the a certain luxury car maker are in danger of being laid off and that buying a Porsche would undoubtedly be socially useful in preventing them being laid off.

Unfortunately there seems to be no mention of laying off any of decision makers at Eskom who managed that organisation into a R9.7bn loss despite having sold almost every single unit of their product. That displays truly awesome incompetence. But they should care less, the customers have no where else to go. Meanwhile over in the army the phrase “military discipline” has become a curiosity. People of my generation watch in amazement at the unruly mobs of alleged troopies behaving in a very unmilitary manner and wonder what happened to the “Korporals” who used to be more powerful and scary than even the worst bear market.

It seems that the press in Perth have thankfully had no time for tomorrow’s tri-nation encounter as there is some Aussies Rules encounter which is far more important. That means that the translators who were sent along to render our coach’s observations into short and meaningful sentences have been unused. Much better to let the ‘bokke do the talking at noon tomorrow.

James Greener

28^th August 2009.

RACING TO GET AWAY

The GDP figures that were released this week were alarming and my conviction that the world wide equity bull markets are unsustainable has been strengthened. It is going to get ever harder for most companies to grow their earnings or even make a profit in the next year or so. The average historic price earnings ratio of 13 on the JSE does not excite me at all. The trend of P rising while E falls is really not a great buy signal. Obviously there will always be companies that will buck the trend and find customers even in a recession, but the real hunt must be on for those organisations that manage the downturn, survive the drought and get positioned to benefit quickly from the recovery whenever it is. Many of the big names – especially in the financial sectors – seem to me to be unlikely to make that cut. Among the headwinds they face is the gale of legislation and costly administration that is now required to ensure that they are operating in accordance with codes that have nothing to do with profitability and customer service.

Education is an area in which we are all total experts having each spent at least a dozen of our formative years in close contact with the industry. Several saddening and infuriating stories broke this week about the ever deepening mess that government is making of providing the nation with motivated and enthusiastic youngsters eager to earn a living and able to read, write and work out the VAT on a dozen cans of condensed milk. It appears that almost a year after last year’s school leavers began to sit their final exams, those that passed are still waiting for some bureaucrat to approve the design of the near worthless certificate that will celebrate the event. The fact that the forgers have already been eagerly supplying certificates for those who failed merely exacerbates matters. And now we have the unedifying sight of universities and education departments circling each other growling about whether or not the ability to add AND subtract is a necessary condition for entry to the nation’s halls of academe.

I am intrigued by the observation that the Chinese appear to have been unimpressed by the assurances of the fellows from Washington that a strong dollar is national policy. The boys from Beijing are very worried about the threat to their reserves that is posed by a falling US dollar and are exchanging them for tangibles in the form of minerals, mines and meadows. This has been causing spikes and peaks in some commodity prices and despite the excited yells from the lookouts that have been posted to check for green shoots these are probably not harbingers of consumer recovery.

Tidemarks is coming to you a day early this week because I am going on holiday. Admittedly it is very hard to distinguish between days when I am working from days when I am not working. Venue and attire are not good clues and it is hard to go somewhere where the cell phone and internet coverage are no different from what I enjoy here at my desk. So it will just have to come down to discipline. A longer beach walk before breakfast, double the post-lunchtime nap and open the first Castle earlier than normal. Perhaps even more fishing time. I am suddenly looking forward to this break.

And sadly, once again the whole issue of race has raised its head in South African sport. This time it has to do with whether one of our athletes at the world championships should be running in the girl’s race or in the boy’s race.

James Greener

20^th August 2009

THERE IS MORE TO KIMBERLY THAN A BIG HOLE

So Governor Mboweni could not resist the opportunity to invite Governor-Designate Marcus to observe the finer points of pedal-stomping. After the speech he ushered her to the top floor eyrie and sashayed over to the corner and mashed the rates-down pedal into the floor a full 50 clicks. There are now only 700 clicks to go before the pedal hits the metal and I am sure the two started to talk about how deflation is suddenly a greater threat than inflation when Tito had to take a call from Minister Gordhan complaining that the rate cut had scared the rand badly and would further reduce the tax take. I expect he also has had to field calls from the banks, pointing out that their earnings are already being crushed and that letting borrowers pay less interest was not going to help. Lenders are likely to withdraw their cash and find somewhere for it to work a bit harder. The words “bail-out” will be popping up in local banking conversations.

Just like the phrase “toxic assets” is reappearing in articles about the US banking system. It seems that skeletons are falling out of cupboards where bankers did not even know they had cupboards. Many years of what was proudly called “financial engineering” created structures where the latter word turned out to be very badly abused. Plenty of flashing lights, sliding hidden panels and whirring fans to impress the punters but not a firm foundation or solid wall in sight. The string and chewing gum fastenings are failing. The only pieces of paper that have any value – and that may also be short lived – have pictures of dead presidents on them. The Chinese government has a lot of those dollars and recently has been asking in increasingly nervous tones just how many more President Obama plans to print. The US dollar would appear to have settled back into a trend of slow but determined weakening.

The rand too may have run out of steam and we have had a few weeks of fairly steady levels against most currencies. It is not impossible that the next big move may be further strength but most of us would accept that the higher probability is for the rand to weaken. It is interesting that there has been quite a surge in trading activity in the traditional rand hedge shares like Liberty International.

Despite some surprisingly large earnings declines being reported by the banking giants, the overall market is still keen to go on up and the All Share has breached the 25000 level almost exactly a year after it passed through it on the way down. Most of the heavy lifting so far this month has been provided by the mining and resources counters but they have had to work hard to overcome falls in the bank prices. Bears who thought that 2009 would be one of theirs are looking gaunt and worried. But patient.

And patience is what I need when I try to understand the nonsense that pours from any official who lectures us about their pet project. This week’s special concerned Rea Vaya, the trendy name given to Johannesburg’s plan to move people in large buses instead of in small ones. Transport Director Seftel offered the assurance “Unlike Metrobus, which the city subsidises, we (Rea Vaya) will …. provide a service …  at a much lower cost. If patronage works out it shouldn’t be a problem. If not, we will have to put in (ratepayers) money. We guarantee a minimum return (to the operating company)”!  Once again Physicist Pauli’s observation that this is “not even wrong!” seems apt. To be a little fair, however, these Bus Rapid Transport plans popping up everywhere in time for the World Cup have flushed out more organisations claiming to represent the minibus taxi industry than there are taxis. Understandably really when the BRT plans sort of mentioned that there might be money in it for the taxi owners and drivers.

Bit of a crunch happening this weekend when the Lions meet the fellows from round these parts. But it is somehow all rather academic while we try to figure out who these unbeaten Griquas are.

James Greener

14^th August 2009.

“WHAT ONE PERSON RECEIVES WITHOUT WORKING FOR, ANOTHER PERSON MUST WORK FOR WITHOUT RECEIVING” [1]

The US is running another wonderful experiment in economics to prove that folk are always delighted to be a seller when the buyer has more money than sense. The idea is simple. Drive to your local auto dealer and trade in your old car for a brand new one and also collect several thousand dollars in cash, generously provided by taxpayers. The gloriously named Cash for Clunkers program whistled through the first $1bn of public money in a just a few days. Now the decision makers, pleased to have found a scheme that is popular and eager to buy the votes of those who were slow to grasp the attractions of the trade and pitched up too late for the first tranche, have now tossed a further $2bn into the pot. Until the money runs out, this scheme nurtures the illusion that the car industry is recovering.

I tried hard to understand just what was decided at Wednesday’s meeting of very important politicians. Certainly, the press interpretation of events usually adds a further layer of confusion to events but I still could not discern, what, if anything the government plans to do beyond convening yet more meetings to talk about how they will fix “the crisis” Apparently much the same people who were in charge when “the crisis” began, now have the skills to make it end.

It was not even clearly stated what “the crisis” was. There is a sort of sulky suspicion that developments are being orchestrated by elements in the public sector who in addition to laying off staff are also colluding to overcharge for their products while avoiding tax. The response is to forbid them from firing anyone, investigate them for anti-competitive practices and send the tax police in to kick down their doors. Economic slow down is not a concept grasped quickly by those on a government payroll and pension scheme.

The bald truth is that the whole world is now facing payback time for spending money it did not have on things it probably did not need. For most people the value of their largest asset (their home) has fallen substantially, the banks want their money back and their job is uncertain. Prices of many things are going down and anyone who is contemplating a purchase is intrigued by the idea that possibly even lower prices are on the way. The Federal Reserve’s worst nightmare of deflation is a galloping stallion.

So-called stimulus packages serve only to disguise and postpone the inevitable and also provide the extra annoyance of seeing the smug grins on the faces of the few who got their paws on the handouts. It has helped enormously if your business is one that is deemed “too big to fail”. In this country, that soubriquet is desperately sought by anyone with anything to do with hosting next year’s soccer world cup tournament and this is undoubtedly delaying the roosting of some very dishevelled chickens.

In marked contrast to the fuzzy waffling of the alleged rulers of the country I was privileged to listen to two CEOs explain in clear and unambiguous terms what their companies did, what the problems were (not a “challenge” in sight) and what they had planned for the future. Their intimate knowledge of the costs, prices and drivers of their total businesses was awe inspiring and their pragmatic approach to the future was devoid of anything but an appreciation that there is always competition trying to steal your customers. Keep an eye on both Tongaat and Metmar.

Challenge is also not a word to be used when considering tomorrow’s match against the Wallabies.

James Greener

7/8/9

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[1] Dr. Adrian Rogers

REVENUE IS RUBBISHED

It seems as if no one believes that there is any bad news anymore. I do not agree. Yesterday the National Treasury published the June exchequer accounts and the two crucial figures are accelerating away from each other at an ever escalating and hugely alarming rate. Government expenditure is now increasing by around 20% pa while government revenue is growing at well below 8% pa. In the second quarter of the year the state spent R184 billion on, amongst other things, ensuring that ministers made full use of their car allowances. This is R40bn more than was spent by the bureaucrats a year ago. Now add to this the fact that revenue for the same period was a mere R120bn (compared to R136bn last year) and you have the makings of what Mr Charles Dickens described as “misery”.

On a rolling twelve months basis the deficit is a staggering R83bn. A simple, but hopefully, unduly bearish extrapolation of the trends suggests that the annual deficit might be R140bn or almost 7% of GDP. Not only is it clear that the new minister of finance is going to have to put on his big borrowing boots but also that the tax payers are in a very bad way, while the tax eaters are off and flying.

The government is obviously very determined to keep the economy afloat by taking over the job of spending money from the embattled, impoverished and increasingly unemployed citizens. Without a very sharp change to these trends, by year end the state will comprise nearly one third of the South African economy. Capitalism under caution?

The markets, however, are not at all worried. Most commentators are confident that the present bad news was what the smart and prescient investors were already discounting during the March crash. Now the worst is over they say, the worrying can end and it is time to be fully invested.

Money continues to flow in to the country and the rand has had another excellent week. So too, by the way, has the Aussie dollar, so perhaps it is a commodity thing. Long bond yields held reasonably steady and the JSE of course kept on surging. But several heavyweight companies either reported or issued trading statements this week and not one was optimistic. The once mighty Anglo American completed a very poor year by failing to pay any dividends at all. I was pleased to note that inflation is falling quite sharply as this means that savers reluctant to leap into shares can find some modestly positive real interest rates. 

Away from the markets, we were treated to the uniquely South African sight of angry protestors singing and dancing while empting rubbish bins all over the streets. This latter action has the satisfying benefit of irritating and alienating the initially sympathetic but powerless ratepayers who will ultimately bear the costs of it all. It also ensures that there will be plenty of overtime for picking it all up again later. I have been mulling over the idea that every parastatal organisation should publish their total wage and salary bill as well as their head count. I think that a simple average per capita emolument number might be very interesting for everyone. To really spice things up how about including the costs of consultants but excluding their number from the staff lists! I have my doubts about the popular belief that public servants need salaries high enough to prevent them defecting to the private sector. Business will poach anyone who will generate more wealth than their salary.

There’s a huge dilemma here in the kingdom this weekend. The sardines have put in a very belated appearance and so the men in shorts are torn between watching the rugby or hunting fish. It’s a tough decision.

James Greener

31^st July 2009.

PROFIT IS A DIRTY WORD

The All Share Index has peeked above the 24 000 level and only old bears like myself remain deeply suspicious about whether or not the worst is really over. Now, any forecast in this business has just exactly a 50% chance of being wrong and so far my views are proving to be right in that half. My difficulty with this market is that it is only the market which has any good news. Everywhere else there is almost no sign of economic recovery. It is of course true that markets usually run many months before the economy does, but in my view this downturn will be far deeper and much longer than most people hope for and therefore this run is a false start.

In the name of stimulus, governments in many countries have started or are accelerating programs of political allocation of resources. In the USA there are already cries for even more stimuli, because the first dollops of cash – with the notable exception of some smart fellows in Wall Street – have not done the job. Here in SA – despite the amazing strength of the rand indicating that there is a lot of money coming into the country – there is a winter of discontent. Notwithstanding the delight of a small segment of the motor industry which has been meeting the demand for two outrageously expensive and luxurious cars per minister (one per city), workers are understandably sympathetic with the looting, striking and rioting that has been taking place. There is great impatience with the state forever just promising “to listen to all stakeholders” when the problem is clear and obvious and not in need of any further discussion. People would like to have more money. Most of us are even prepared to work for it. But being socialist by nature and suspicious of free markets, the state’s response will surely be to play an even larger role in resource allocation. People who should know better are starting to condemn the idea that profits are important and it might not be long before the term shareholder will be pejorative. Showing good earnings and paying them to anyone other than the taxman or the labour force may be unpopular until growth returns.

Governor Mboweni will have spent much of the week showing his successor, Governor-Elect Marcus around the executive suite at the top of Reserve Bank Towers. Not only is there the boring work-related stuff like a shelf to hold books, a drawer for your pencils, the Rates Up lever and the Rates Down pedal, there is the private lift and en-suite dressing and bathroom to explore. Ever thoughtful, Tito has already arranged for the wardrobes to be adjusted to provide extra hanging space for Gill’s kaftans. Reportedly however, the highlight of the tour was a demonstration of the secret system that alerts the incumbent to the arrival of fresh baked goods in the staff canteen 12 floors below.

When suits begin to squabble amongst themselves and use the word “disrespect”, one can be certain that one bunch must have pocketed incentives that the others thought that they should have shared. SA Cricket’s alleged but clearly unsuitable “boss” says that there is no force big enough to make him change his mind about dropping Wanderers from this summer’s list of venues. Just how much respect does this show for the paying spectators?

Apparently a seismic event has moved New Zealand a little to the left on the globe in the last few days. That means it is now closer to SA. So we don’t want to hear anything about travel fatigue from the All Blacks when they are looking for excuses after the Test in Bloem tomorrow.

James Greener

24^th July 2009.