WRESTLING WITH THE RAND

Pretty much everyone it seems is keen to see the rand weaken. That is they think it would be a good thing if a unit of foreign currency were to cost more than it does at present. Quite how this can be made to happen is not clearly explained beyond a bit of arm waving and muttering about lower interest rates. Presumably the fact that our rates have been coming down precisely over the period when the currency has been going up is an embarrassment best left unexplored. The rand is strong because people with other currencies (except in fact the Yen) can see attractive things to do with rands. This includes the so-called carry trade which admittedly does rather depend on interest rates in South Africa being higher than elsewhere. Observe that the theory that after the world cup, demand for the rand would diminish has also been shown to be wrong. Sometimes the attraction of another nation’s money evaporates when the authorities in that country begin to behave erratically. This theory too is being disproved as the lunacy levels in the corridors of power rise. About the only sure thing is that when the currency does once again hit the skids and dollars cost R10 each, the moaning will be just as intense as at present with calls for someone to do something about it.

Equally puzzling is the strength of the equity market where the All Share index has been making a credible attack on the 30 000 level, a number it last enjoyed – on the way down - in July 2008. It is puzzling because the current round of company reports revealed no exceptional growth stories and some decidedly downbeat outlook statements. Very few companies or industries seem to think that business is undoubtedly getting better. Our largest bank is going to fire some staff. That’s not an indicator of things getting better. There is of course a world-wide scramble for yield and income and news of a blue chip company downsizing does cruelly suggest that they are doing what they can to keep shareholder earnings stable.

Talking of stable, all these headlines about SAB and Castel were a little worrying until it turns out that it had nothing to do with Castle, Mr Charles Glass’s finest brew. Groupe Castel is a brewery company that SAB are thinking about adding to their portfolio in their quest for world domination of thirsty folk. This share is always expensive but always worth buying!

It should also never be confused with SABC, which is a horror show pretending to be a national broadcaster. In actuality it is a device for transferring tax payers’ money to lucky individuals whose first task on assuming executive office is to submit a resignation letter along with a claim for large sums of money. Anyone sitting tight and displaying skill or interest in providing licence payers with a service is dismissed, but is still eligible for the going away presents. The SABC revolving door staffing policy provides newspapers with 5% of their daily content, none of which is ever read by anyone.

On the other hand there is great interest in reading where and when our president jetted off to, and particularly who went with him. Sadly, however, this information has now been classified and we shall just have wait until an overseas photographer snaps a picture of the fortunate fiancée before we know that we shall have to start saving for another wedding.

It is a small thing I know, but how do the teachers find the time to traipse off to their union conference just weeks before their pupils’ year end exams? The conference anyway seems to have developed into an acrimonious battle between political factions rather than a discourse about how to rescue the children from the failed experiment of OBE.

As usual these games events provide unmissable viewing for those of us unaware that girls did Greco-roman wrestling or that hockey was played in a shallow swamp or that SA has a strong archery squad or that synchronised swimmers wore water-proof makeup. The Sharks might need some of that stuff if the rain promised for Newlands tomorrow shows up.

James Greener

8^th October 2010.

INDECENT WORK?

The All Share index delivered a magnificent total return of 8.7% in September. A substantial portion of the heavy lifting was provided by the Consumer Services group. However the sad news is that year to date the All Share return is also 8.7% which means that the market has churned away for really very little effect for some time. Naturally there are huge variations around this dull average. Expectation of consumers returning to the checkout lines and a possible foreign takeover has pushed the general retailers sector up an astonishing 50%. The deadweight was been platinum mining, down 11%. The strong currency is thrashing this industry.

In June 997 960 foreign tourists arrived in SA of whom 16 368 were mystifyingly classified as non-visitors. More than a quarter of the other sort of visitors came into the country for less than a day. The 721 311 folk who visited and stayed for at least one night will obviously include world cup teams and fans. Not a lot is it? Slowly we are piecing together the full picture of that event. It was undoubtedly a whole lot of fun, but financially, nothing like the forecasts.

Another interesting statistic is that there are 10 million vehicles on the roads but just 6 million driver’s licenses. In a typically touching display of naivety, the transport minister declared that this gap was too large and that 1 million new licences would be issued in the next 12 months. Personal experience of assisting a learner driver to book for the official tests confirms that this target will be met only by heroic levels of bribery and little actual driver testing. Meanwhile the implication that no one is driving those other 4 million vehicles is manifestly false as anyone using the roads can confirm.

The Chinese are now such great new best friends that we have sent them models of our finest hominin fossils. But the news that Wal-Mart, which is China’s largest private customer, is looking to come here and sell stuff so cheap that even the poor can afford it has caused alarm. Allegedly the retailer has an archaic view about paying employees what they are worth. Union leaders are warning that if this attitude were to catch on amongst other employers, workers might choose not to pay Union subscriptions. And thousands of civil servants would be paid nothing.

I have failed not to get really angry at the complete nonsense of the celebratory announcement that our dear leaders have identified 12 national “outcomes” that all cabinet ministers will sign as part of service delivery agreements. Leaving aside the worthlessness of a politician’s signature on anything – he or she isn’t committing a cent of their own resources – the requirements of good government have been known for centuries, even if rarely practiced. In similar vein, another bunch of tax eaters has come up with South Africa's first ever Decent Work Country Programme. The only work this scheme will ever create is ever more forms for employers to complete to justify why they dared to offer a part-time cleaner’s job with no medical aid benefits or personal development program to a desperate man standing at the front of a long line at the factory gate.

It is worth recalling that the ABSA CEO who has been clubbing the South African Rugby Union with her handbag is married to a government minister who has declared his preference for the All Blacks over the ‘bokke. And then ABSA’s parent is Barclays in the UK, who are unlikely to be ‘bok supporters. Mind you SARU probably deserve a bashing for permitting irrelevant and extraneous factors to affect their sole job which is to create a rugby environment from which can emerge a Springbok side that beats everyone. And that goes for the people who run soccer in this country as well.

I suppose that the Sharks fans in the pub will be far too preoccupied with tonight’s match against the Leopards to want to talk about the Transvaal score line from last week.

James Greener.

1^st October 2010

STOKING THE FIRES OF BUREAUCRACY

It really is very odd. Every day the anti-capitalist debate ratchets up another notch and the masses demand that the state should do more and yet every day demand for the rand also increases. Do foreigners really want to own South African assets in the belief that the state will buy them out at better prices quite soon? A further error in this model is that even if this were vaguely possible, the scrum at the currency exit doors thereafter would presumably soon erode any putative profits. And while the data suggests that exports are growing faster than imports, is the currency effect of this really overwhelming the ingrained habit of South Africans to get money offshore at every opportunity? Like everyone else I just shrug and mutter about the “carry trade”. But even that needs more players or money to be joining the game all the time in order to explain the strengthening rand.

Oh and the gold price keeps going up.

Some alarmingly influential voices are starting to agree with the crazies that nationalization is perhaps not such a dirty word after all. What is going on? Are they putting something in the water? Name just one area – other than tax collection – where the state shows the least aptitude or ability or even interest in running an effective and efficient organization. And even tax collection is tending to degenerate into shrill threats akin to extracting money with menaces. I wonder when someone at SARS will spot the terrifying idea being floated in Britain that salaries and pensions ought all be paid directly to the Receiver of Revenue who will subtract what he feels is due before sending the balance on to the mugs. Really, governments world-wide are getting far too large and self-important. Remember, THEY work for US.

This sad decline has been quantified by the announcement that South Africa has in the last 10 years fallen 40 places to 82^nd in the world economic freedom rankings. The ranking process scores dozens of different areas and sectors before aggregating them to obtain the overall position. In the areas where the government has so far not managed to interfere too much our rankings are rather good and the JSE’s settlement systems even scored first place. But in places where the state either needs to or has chosen to operate, like the regulation of business, security of property rights, health and education this nation is vying with some very dodgy and failed regimes for the bottom of the league tables.

Current contributions in the race to the bottom are being made not far from here, where catering with talking opportunities has been arranged for the party elite and crowds of hangers on in a large conference centre. The city council has closed the streets around the venue to traffic. Blue-light convoys wail along the freeways at all hours. The perceived threat to delegate comfort is clearly more important than ratepayer convenience. Ever since the world cup, the traffic cops are eager to try their skills at traffic disruption at any opportunity. Pigspotter, the splendidly named addition to cyberspace, now has associates in the kingdom.  Few will believe that the authority’s anger at people using technology to alert each other to speed traps and road blocks has anything to do with road safety. More likely it is a reaction to the threat of disrupting both formal and informal revenue collection.

I was delighted with the news that Sasol is now producing a fuel from coal feedstock that is good enough for aircraft to use. I remember a vintage cartoon, lampooning the new fangled aviation industry, depicting a sweating engineer frantically shovelling coal into a boiler in order to raise enough steam to keep a string and paper plane-like contraption aloft. And now it happens. I wonder what fuel the military jets and helicopters showing off over the conference venue are using? Come to think of it what are they doing there anyway? It’s just a party talk-shop.

New events at the Commonwealth games include concrete mixing and pouring, stadium seat installing and pin the blame on the donkey.

James Greener

23^rd September 2010.

TAXING THE FAMILY JEWELS

Feature of the week is the dollar gold price which just keeps on trucking upwards. The business channel screens are full of well brought up economists insisting that the decade-long rise is short lived and that gold bulls will regret swapping fiat paper money for lumps of cold yellow metal. They are eager to point out that amongst its many shortcomings, gold pays no interest and can be used to avoid tax. Locally our enjoyment in this excitement is muted but hopefully only delayed by an obstinately strong rand. This strength was not helped by the Japanese authorities, exasperated by their own strong currency, giving it a few swipes with a samurai sword and making it leak a bit. Buyers outnumber sellers in almost all the world’s share markets and our own All Share is sniffing at the heels of 29 000 again.

COSATU’s suggestion that the country needs a state bank (that)… “will ensure that interest rates are low enough to finance productive economic activity" raises a few questions. Does the author of these words understand that banks normally only lend money at rates higher than they can borrow it for?  Like most old reactionary cynics I shall not be reading “A Growth Path towards Full Employment”. The document is reportedly keenly supportive of the view that government employees alone have the skills and training to control the allocation of a nation’s resources. For me there already is far too much evidence that anything the state tries to run is bound to fail. Simply the issue is that people look after their own assets best and when entrusted to administer assets which have no immediately obvious and watchful owner, rarely resist the temptation to steal them. Corruption is the usual term.

This week’s saddest example of the state’s failure is the demand by pupils who lost out during the teachers strike for a guaranteed year end examination pass. Pupils themselves are now reportedly on strike and armed police have been deployed against the threat. . No one in authority has the courage to point out that an exam pass is totally distinct from acquiring the skills and knowledge that these so-called “learners” will desperately need to compete with the other entrants to the labour market all over the world. Many of them I suppose still believe that the state will provide a living even if they can not read or write. After all, who has ever seen pictures of our president deep in concentration poring over a policy document while making annotations in the margin?

 Another community that the government is unwilling to confront with the truth is mini-bus taxi drivers. AARTO is the rather ugly name for yet another scheme to cajole drivers into obeying the traffic laws. It final but risible sanction is the withdrawal of a driving licence – a document that many never legally obtain anyway. AARTO’s implementation has now been postponed because of “public panic”. This panic was actually an unruly traffic-disrupting gathering in Pretoria that had the familiar effect of demonstrating which side is the more heavily armed.  

Those of you not living here in the kingdom may have missed the story about the unfortunate woman who was robbed of more than R200 000 worth of jewellery. This dreadful crime took place in a shopping centre as the lady was returning to her car after having had the jewels weighed. The purpose of this odd practice was, she explained, in order to “pay taxes on it”.  It is indeed tax return season, and most of us are currently wrestling with the dreaded forms, but I must admit to having missed the levy based on the weight of one’s trinkets. Mind you, the lady concerned is a close relative of the man who used to be the president’s financial advisor so maybe she is privy to some forthcoming announcement. As far as I know the tax man’s recent communication to several thousand of his customers did no more than leak his email address book to the astonished and in some cases delighted recipients looking to expand their own client base.

My Shark supporting friends are getting anxious about the resurgent and mighty Transvaal.

James Greener

19^th September 2010.

BULLS EVERYWHERE

In common with investors worldwide, those on the JSE became overexcited at yesterday’s news that only 451 000 Americans were claiming unemployment relief and indulged in a buying spree. Shortly afterwards the Bloomberg’s news service announced that the SA  repo rate had been cut 50 basis points from 6.5% to 6.0%. 20 minutes later Governor Marcus confirmed this in her TV broadcast and even more frantic buying ensued. But before the market closed, the sad fact that all of this actually has scant immediate impact on the valuation of companies wiped out much of the exuberance and prices slumped. Day trading is for the brave and nimble only.

Some research suggests that changes in the price of money can take months before any measurable effect can be detected in the various measures of economic activity. Presumably now that cash is cheaper than it has been for decades, borrowers must be pleased, but whether they will now borrow and spend more than they had already planned is unknown. I suspect that matters such as threatening political instability, excessive and unpredictable regulation and bureaucratic interference provide somewhat more important considerations for financial  decisions than interest rates.

That would seem certainly to be the case with the currency, where notwithstanding the rate cut and ever more strident shrieking about nationalisation and land ownership, demand for the rand is maintained. In addition to the widely believed story that foreigners just love buying our still quite high yielding bonds. Notwithstanding the demand for super luxury watches and whisky from President Zuma’s fortunate and capable friends and relations, other data also indicate that the value of exports is recovering faster than the value of imports Whatever the reasons, it does look as if quite soon just seven rands will buy you one US dollar. Mind you that also says something about the dollar getting cheaper.

Reporting and dividend season is now upon us and good news results outnumber the bad. The people running the real economy are doing a good job for themselves and their shareholders. This doubtless is one reason for the trade unions demanding that the government “tax the super rich”.  Assuming – incorrectly – that each of the 400 or so listed companies is able to pay say 10 directors and executives R10m a year each, that R40bn, even if taxed at 100% (!)  would cover just 19 days of government expenditure.

If your travels ever land you at our new King Shaka airport down here in the kingdom, take a minute to find and view the smallest of the delightful family of bronze bovines that stand outside the terminal building,. The recumbent calf is easily overlooked but is very appealing. The bull, however, is rapidly acquiring a shiny nose as visitors adopt the custom of rubbing it as they pass. The figure of the herd’s minder, King Shaka himself is absent. It has been removed following complaints that it failed to radiate sufficient power and gravitas. An official committee has been convened to instruct the sculptor

The folk who run cricket will be delighted that they have at last managed to rid themselves of any support from old duffers like myself. After studying a full page colour advertisement for a so-called Champions League Twenty 20 tournament that is about to start here on the southern tip, I am no wiser about how many South African teams or players might be participating. The organiser’s transformation of the game from employing boring yet identifiable regional and national teams into natty contemporary franchises is complete. Who on earth are the Wyamba?

And come to think of it, who are the Pumas?  The hint is that the Sharks are going to Witbank tonight so I guess someone in the Eastern Transvaal thought an American cat was an appropriate name for their rugby team.

James Greener

10^th September 2010.

DANCING QUEENS – IN WAITING

Sadly the strikes appear to be continuing. The union leaders expressed little interest in the government’s complaint that taxes and borrowing will both need to increase if their demands are to be met. There is obviously a huge problem with the state’s pay scales and staffing policies. The national department of arts and culture – surely together with sport, an area that has no need for government presence – this week advertised five Chief Director posts all offering salaries over R60 000 per month. The successful appointees will direct, in chiefly fashion, departments dedicated to “Investing in Culture” and “Arts and Culture in Social Cohesion”. That these jobs even exist let alone will soon be filled by dark-suited laptop-bag toting airport concourse denizens on their way to meetings and lunch is offensive. The department is also seeking to fill the obviously very lowly but hopefully vital post of Assistant Director: Budget Planning and Expenditure Control with someone skilled, qualified and experienced and who will be content with R16 000 a month. I expect the previous incumbent has joined the skilled, qualified and experienced nurses and teachers on the streets.

However, the KZN department of arts and culture has been busy doing some real work. They have been counting maidens and announced today that at least 26 000 are available to take part in the annual Reed Dance. The Dance is a sort of shop window for the king and his buddies to conduct a stock take of potential marriage partners. President Zuma usually attends. The rest of the world is either amused or aghast. It seems an incredibly large number.

Do politicians never share a meal or sit down with their family and discuss the triumphs and tragedies of the day? Do they really have no interest in what their flesh and blood is up to? Durban’s Mayor Mlaba claimed he had no idea that his daughter’s company was working for the city. You would have thought that a R3m contract might just have been exciting enough to mention to Dad between the soup and the main course. Apparently officials are usually “so busy formulating policy” that they forget to check if any family members are breaking the rules. Believing this makes you as naïve as the bookies who quoted odds against Pakistan bowling no balls to order.

In the meantime Governor Marcus has explained that interest rate decisions are “complex”. This presumably is code for “don’t expect us to cut rates next week”. Actually the decision is difficult not complex. It is merely up, down or nothing. Up will cause so much uproar that the sky will fall down. Leaving rates unchanged will attract scorn and accusations of timidity. So they may as well cut 50 bp. The only sufferers in the short term are a handful of elderly savers who won’t say much, and it is unlikely that anything the Reserve Bank can do at this stage will revive the near moribund lending market.

The All Share index is now exactly where it began the year having excited both bulls and bears in turn. The performance has however, been unevenly distributed with the modest uptrends in financials and industrials offset by a fading resources sector. Now mining was supposed to be the sector that was going to make us rich in 2010 as we pinned our hopes on China’s seemingly insatiable demand for raw materials to build stuff with.

Pretty much anytime the ‘bokke players or coach spot a microphone, they feel compelled to say things that later almost everyone would rather they had not. Apparently coming second in the tri-nations is now regarded as both inevitable and a good thing. Oh dear me no.

James Greener

3^rd September 2010

MAID IN CHINA

The writing is on the wall for the thousands of us who have tried to make a living from convincing other people that we know what is happening in the world’s markets. The truth is they are incomprehensible to everyone. Who, for example can explain why anyone would lend money to the massively indebted and probably bankrupt US government for 10 years at a mere 2.5% interest per year? Closer to home there is the puzzle about why a bunch of folk in Geneva would agree to a deal which the counterparty – a rather dodgy mining house – have described as being “very difficult to explain to the public”. It also doesn’t help when the house cheerful admits that they will be using the initial $2m of the deal to “clean our dirty laundry”. And in a different sector yet another giant international bank has been lured into believing that the South African business of lending money to poor people is profitable, and has offered to relieve Old Mutual of their shares in Nedbank. The share prices of both companies rose satisfactorily.

So where can we put our money in the hope and expectation that it will enjoy capital growth and provide income for life’s little necessities like beer and fishing rods? This week the inflation statistics were published and it does rather look as if that particular enemy of savings is dormant at present. This suggests that both growth and income expectations should probably be adjusted downwards to this “new normal”. This has in fact taken place and for almost a year the All Share has meandered along in a relatively narrow channel occasionally teasing us with the promise of a healthy bull, and yet always letting the bear out when things got too heated. The inflation numbers also did nothing to help the cause of the strikers whose leaders continue to sacrifice their member’s jobs and incomes in return for political recognition and seats at the high table. The cruel fact – dreadful examples of profligacy and lavish executive excess aside – is that labour is in oversupply and therefore its aggregate cost can not rise. Some of us believe that the oversupply is almost entirely an effect of government meddling in the market. But that is another whole debate.

Also in serious oversupply are our president’s consorts. Emerging from the luxurious sharp end of the SAA plane that took him to China, the pres was followed by a lady described as his fiancée. Undoubtedly the welcoming committee had been briefed beforehand with an already lengthy list of names, pictures and details of the several women who are already the clients of the South African President’s Spousal Support Office. The arrival of another candidate must have caused a flap even amongst the inscrutable hosts waiting on the tarmac. Presumably after the pleasantries were over they managed to ship President Zuma and his entourage safely into the city without encountering the amazing 100km long traffic jam that is reported to have gridlocked Beijing for days.

I was less fortunate. An unknown but presumably serious incident resulted in the need to close completely the south bound carriage way of the very busy N2. Traffic was directed down a small and little-used off ramp and a massive tail-back ensued. Immediately, the emergency lane was adopted by drivers who believed their journey was more important than everyone else’s. This forced the minibus taxis on to the grassy shoulder where progress was somewhat but not totally impeded by the concrete culvert. Adding to the delay was a toll booth of only two lanes that guarded the off-ramp. Every vehicle was obliged to stop and pay the appropriate but unusually tiny toll. Not one of the myriad of uniformed officials witnessing this stupidity had the wit or authority to notice that the economic cost of a 5 km traffic back up on a major arterial was far greater than the loss of revenue that opening the tollgate would cause.

I will be watching this week’s Test against the Wallabies as it happens but only because good friends have promised support and strong drink. These are dark and terrible times for SA rugby.

James Greener

27^th August 2010