GROWING UP IS NOT FOR SISSIES

The bull got just 4 days into the New Year before stumbling a bit. I have been fretting for a while that he was way out of range, but  probably the lure of setting a new high in 2011 will return to dominate sentiment before too long. The event that caused the pullback was an alleged strengthening of the US dollar which did indeed bounce versus the euro, but only just back to early December levels. The USD must inevitably slide while that government spends freshly minted dollars in an apparent attempt to coax its citizens into returning to their spendthrift consumer habits.

The big developing theme in world markets would seem to be the rise in commodity prices – particularly food. With this country now sadly a net importer of food and not obviously opposing the shocking incidence of often fatal violence against successful farmers, this is a very worrying development. There may indeed be investment opportunities that will arise from the situation but social strains and unrest are possibly more important factors to keep an eye on.

That Sepp Blatter chap has plenty of things to answer for. Not least is his cutesy trick of pulling the winner’s name out of an envelope. Basic Education Minister Motshekga used the stunt yesterday to disguise the fact that her department had failed to get a third of the nation’s school leavers to even a remotely useful level of education.  Because most of us have at some stage whiled away many hours in a class room we are naturally all experts in the field of education and how it should be run and so the professionals are never short of free advice. Nonetheless, the sad fact is that already a large number of the two thirds who did “pass” will have discovered that their country has little need for them or their proud achievements. The state’s example of promoting inexperienced and unskilled people to positions of authority has done the youth a huge disservice. They are now loath to believe that substantial effort and time are required before one can truly aspire to the corner office with company credit card and car. They would probably also be appalled to find out just how hard the people in the private sector who deservedly fill those posts need to work to keep both their own job as well as those of their employees. Even a distinction in “Life Orientation Studies” does not, I suggest, provide adequate preparation.

The large number of people who have been killed by lightning during this summer’s storms is indeed very regrettable. I suspect, however, that after taking into account population increases, that this cause of death remains proportionally very low. Certainly less likely than being killed by a politician speeding at 235km/hr. Nevertheless Local Government and Traditional Affairs MEC Dube should be admired for her trips to visit and comfort the bereaved. Less easy to praise is her announcement that she would be asking the government’s Science and Technology Department “to conduct research on ways to prevent lightning strikes, especially in rural areas”. While she may not be aware that the country has long been at the forefront of research into understanding this awesome natural phenomenon, I am worried that the MEC seems to imply that urban lightning is somehow less significant. Hands up all those who have had their modems and fax machines fried by a bolt from the blue.

The research that really needs urgently to be done is how an off stump can be knocked half a centimetre off line by a speeding ball and the bail doesn’t come off? Jacques Kallis deserves all those man of the match awards but that miserable piece of wood deserves to be burnt and its ashes stored in an urn.

James Greener

7^th January 2011

BRIC A BRAC

 It looks as if the All Share index will end 2010 about 1000 points short of topping the all time peak attained in 2007. Nevertheless the bulls claim that this is the perfect platform from which to soar off and up into the New Year. Indeed share prices can and do go just about anywhere but some of us old curmudgeons believe that when valuations do so, there are messages to be read. An All Share dividend yield of 2.2%pa is not attractive.

A consequence of the compression of interest rates into an ever narrower band above zero is that the differences between the various yields offered by different products become smaller. I have uttered this particular piece of stockbroker heresy before but repeat that the 2-year RSA retail bond paying 7.50%pa seems attractive for those who feel that inflation will not be a threat in that period and that Governor Marcus will continue to lean on the “repo down” lever.

A few years ago Analyst O’Neill decided that Brazil, Russia, India and China displayed sufficiently similar economic and social characteristics that a pithy term would be useful when referring to this class of significant but not yet fully developed countries. He coined the acronym BRIC as a sort of collective noun. It has now turned into some sort of club which this week invited SA to join. Why this is important or good is not immediately obvious but it sure made the rand improve yet further and at R6.75/$, the latest annual GDP figure of R2.6tr converts to $380bn.which places us around 20^th on the world leader board – next to Switzerland! Many other developing nations appear much higher up the board with scores of more than double this figure so they are puzzled and hurt at being ignored by the self-appointed BRIC selectors. Now our own President Zuma was hanging out in China just recently, so we can conclude that he must have been handing out  glossy pamphlets highlighting the many attractive snow-free venues available in SA for future BRIC luncheon dates. It obviously worked.

Tidemarks tries to avoid making forecasts even on tempting occasions like the start of the year. As usual, the proper analysts are moaning that this time it is harder than ever to see what the future holds. Nonsense.  Any dive into the future always carries exactly the same degree of difficulty – impossible. However, I do think that next year’s implementation of the long promised change to the way that dividends are to be taxed may cause alarm and despondency amongst investors.

Basically the switch from the current 10% Secondary Tax on Companies to a 10% Withholding Tax on Shareholders should provide work only for accountants and similar species. The amount of tax collected by the National Treasury as dividends flow from companies to local shareholders ought not to alter materially. However, there are numerous potential sources for confusion and misinformation lurking in this landscape, and just one alarmist headline could easily lead to panic. As already discussed, dividend yields are thin enough and any threat of further trimming will be unpopular. My belief is that companies will need to declare their dividends both pre- and post the Withholding Tax and I, for one, expect that the post-tax figure will be the one to use when comparing prior years and dividends. As I said, there are ample sources for confusion.

But I am not confused when I wish all my readers a very happy, safe and healthy New Year. Prosperous will be good too.

Even while the Proteas were making a total mess of the test at Kingsmead the local newspaper was treating Sharks fans to pictures of their boys stripped down and training in the equally muggy stadium next door. Seriously guys, it is still December, just.

James Greener

31^st December 2010.

WHAT A LOTTO I GOT

There are a few more trading days left in 2010 and it looks as if the All Share may just fall short of  breaching the 33 309 peak set in May 2008. Mind you, one Christmas-tide many years ago the Russians suddenly decided that they needed to learn about Afghanistan the hard way and that popped 5% on the index overnight. So far the overall market index has delivered around 17% total return for the year. That will be way better than most investors were hoping for or pundits were forecasting which probably means that most of us will have missed much of the rise by being too liquid. And interest rates came down too. This is a very difficult and weird game.

It may be worth pointing out that the actual quantum of earnings being reported by the Top 40 companies today is about the same as was being declared way back in 2007. In the intervening period, after one more quarter of excitement the credit crunch snapped down, earnings collapsed and it has taken many months of hard work to recover even this far. But share prices today are nearly 15% higher that they were then, which implies that buyers are expecting a very significant improvement in company profitability into 2011. In my view there is little evidence to support such a development. There is a rather too much hope and faith resting on the promise that the government’s infrastructural spending plan is well underway. Indeed construction has been one sector where earnings have not improved in recent years.  My own suspicion is that because of corruption and maladministration much of budgeted expenditure has been diverted directly into private consumption without first having travelled through professional services, procurement and fabrication. It is alarming how many businesses appear able to declare director’s bonuses before actually starting the task they have been appointed and paid to do. This model neatly deals with the expected profit margin up front without the tiresome and messy task of doing and completing the job and then preparing accounts to see if there is any profit left over.

It is just too easy to poke fun at the World Youth Festival which appears to have been particularly successful in attracting rain if not the advertised celebrities to drop off in Pretoria. The theme of the festival is “Let’s defeat Imperialism” - a term which my reference suggests is not easy to define today and which is now often used as a term of abuse. Nations practicing “true” imperialism are rather thin on the ground in the early 21^st century although some particularly skilled and well trained youth claim to be able to detect “ideological imperialism” just about everywhere.. I would have thought that gambling and lotteries were despicable Imperialistic practices, nevertheless the festival organisers were extremely efficient in liberating a useful R40m from the Lotto, an act that has proved to be just about the last thing they have managed to do successfully. The defeat of imperialism has given way to the more bourgeois matters of shelter, warmth and food. The good news for the rest of us is that it cost taxpayers way less than a single world cup match and some of the delegates might actually like the place and return one day as rich tourists. The KZN delegation, however, has already returned as grumpy kids.

All year two quite big and sometimes excitingly violent rows have been taking place where the only people interested are the participants and the newspapers, thankful for something to fill their pages with. Both concern organisations known by their four letter acronyms which if they settled down and worked properly might make a huge contribution to the country. In the mean time the rest of us will continue to have no interest in either the SABC or COPE.

The way the third Ashes test is going, I think all 22 players might be asked to undergo a lie-detector test or donate a sample for analysis. It’s a funny game cricket – but not weird.

James Greener

17^th December 2010

HOW DO YOU TURN OFF THIS INTERWEB THINGY?

After two weeks of news isolation while exploring a corner of the Kruger Park, it has been great fun to return to the absolute furore being caused by Wikileaks. This is yet another wonderful example of how people – especially those who claim to be in charge – utterly fail to grasp how the internet is completely changing the way the world works. If these documents that are now public really are as sensitive as the spooks claim, then perhaps they ought to have done the job for which we pay them and kept the darn things properly secret. As it is, so far all the documents have revealed really is the unsurprising truth that politicians, diplomats and bureaucrats are just as grubby, self-interested, clueless and fond of gossip as all the rest of us. Their attempts to prevent us mere plebeians and taxpayers from finding this out are almost as amusing as watching the stammering denials that anyone ever wrote that the president of a neighbouring country was mad.

The JSE, and indeed most other share markets are enjoying almost the complete opposite of free fall as investors and speculators search for alternatives to keeping money in the bank. They are also not buying bank shares and that sector continues to fall away relative to resources and stocks with more direct exposure to consumers. The Transvaal holidaymakers have appeared in the kingdom in their thousands and a trip to the malls shows no sign of shopper’s shyness. A newly listed instrument that offers buyers exposure to the price of crude oil in units of rands per barrel is yet another currency hedge vehicle to consider for the time that our dear rand falls from grace.

Do we not have more productive things for people to do than trawl through company reports counting how many women work in the place?  Presumably it is us taxpayers who employ these folk to howl with outrage at their discovery that “companies demonstrate a lack of coherent gender transformation […] polices, with little evidence of […] designated responsibility measured through performance management mechanisms”.  No one trying to run a business where people are employed on the basis that they add more value than they get paid, have any desire or time to understand let alone implement nonsense like this. I wonder what will happen to the small firm that they found that did not have any men on board.

Not only has the pres generously cancelled the R1.1bn debt that Cuba owes us for kit bought more than ten years ago, he has lent a further R1.4bn to this obviously high risk borrower and in return the younger Castro pinned a medal to his chest. Hey! That’s our money you are dishing out sir, even if it is a lovely gong.

I also missed the third quarter GDP announcement – not all that encouraging  – and Minister Patel’s magnum opus on how to get the country growing by getting more government officials to offer advice and give instructions on how the rest of us should do stuff. That’s not much good either. A good research piece in Biz Day by Annabel Bishop points out that public sector remuneration is growing by almost 30% pa because of both higher salaries and new hires. There’s your first problem right there minister. And please also note the calculation that adding the proposed health scheme to the spending side of the budget might require marginal tax rates of around 70%. Oh dear me, no.

Equally disturbing is the picture of a man in loin cloth who was trying to raise awareness of some doubtless critical issue at the climate talking shop in Cancun this week. Please note sir that despite its reputation for balmy weather there can still be some unseasonably cold spells in Durban in December and you might need to pack more gear for your next appearance.

I am delighted to report that I was watching a pack of wild dogs at the time when I could have been witnessing the Scots feasting on Springbok.

James Greener

10^th December 2010

MORE BAD NEWS FOR SAVERS

Governor Marcus and her team of whiz kids have come to the conclusion that 5.5% is the correct price for money. Two years ago her predecessor and his bunch selected 12% as the ideal price You sort of wonder why it has taken them two years to get here because there is no evidence that the step by step progress from there to here has had any impact on the old enemy of inflation, which in fact has led rates down by quite a distance. Neither growth, employment or the currency has behaved according to plan so what is the point? Faithful readers will know that I am deeply suspicious of committee decisions and this repo rate is a good example of how they usually don’t work. You have to be almost as old as I am to remember a brief period when the nation flirted with letting market forces set the repo rate. It was exciting and volatile in the beginning as everyone learned how to game the system. Fortunes were made and lost but in the end I think it was settling down nicely. The Reserve Bank, however, suspected that the quiescence reflected collusion between the major players. So instead of trying to cure that, they quickly returned to the system of letting a committee set the price of what is used to price everything else. Unsatisfactory.

From what I can make out, the Irish nation is being urged to borrow money they don’t really need right now so that other countries that really have to borrow now will be able to do so cheaply. What’s happening here apparently is that bureaucrats are trying to influence the price of a type of money that undoubtedly is determined by market forces. That is the money that investors lend to national governments for lengthy periods like 5 to 10 years – usually called the bond market. This is just one of the shenanigans taking place in the global financial scene each of which may be having its own influence on what happens here.

The G-20 meeting ended with a communiqué that was as meaningless as the delegates hoped to get away with. The worthies of the G-20 invited those countries who felt their currencies were over valued to respond with “macroprudential” measures. In the predictable brouhaha that broke out among the talking heads of the rent-a-response industry and the media scrum about what on earth this might mean, the suits slipped away. I am sure that word in not in any real dictionary. Perfect.

A local shenanigan receiving too little attention is the news that in August the managing director of the company that prints the bank notes for us and other nearby countries was found to be rather remiss about keeping records and counting the stock. He was suspended but not charged. That must have been fun while it lasted.

Ms Middleton and Prince William were responsible for several terabytes of digital picture stock this week when they announced their engagement. Presumably her expectations of her future husband’s income once he is crowned king are well above the level recently announced by President Zuma for our local royalty. On not even R71 000 a month, kings lag both premiers (R135 000) and even executive mayors (R75 000) in the income tables. You wouldn’t cover even the Palace’s Corgi food bill with that. Perhaps we have a lot of kings?

You can be sure that there will be hordes of executive mayors, premiers and perhaps even kings turning up in Durban in 12 months time when unhappily we host an international climate change conference. Once again throngs of carbon-based life forms with zero knowledge about science will gather to demand in voices filled with carbon dioxide that the rather vital 6^th member of the periodic table be banned from the globe. It will be a mess and another bill for ratepayers.

So what exactly is it that the ‘bokke have been eating with their cornflakes? If it is all that potent it barely worked against the Welsh.

James Greener

18^th November 2010

FEATHERING OUR NESTS

While most of us have been fretting about strong rands, quantitative easing and other diversionary events, the bull has supplied the All Share index with a very impressive 20% boost since Spring Day. It has been the resurgent resources which have contributed most of the oomph. Financials as a sector are battling, and in my view will probably continue to do so until demand for their product – money – picks up. Even in rand terms the rise in the international commodity price indices has been very useful and one wonders what would happen if the currency one day did do a swallow dive and bolster local earnings even further.

Most of the great and not so good talking heads are gathered in South Korea for a knees-up where currency strength is definitely a huge agenda item coming closely below the lunch menu and the pecking order for the group photo. The delegates and their prejudices, policies and proposals are generally unchanged and indistinguishable from those present at every previous meeting. If they really do have an influence on the way things work then the current mess is therefore their fault and there is really no sense in letting them try to fix it again. More probably the economic situation is and always will be the result of about 6 billion people looking out for number one. The best thing the heads can do is go home, slash government spending and interference, which distorts the proper allocation of resources, and then retire to write their memoirs about how they for once did something really useful for the planet.

Government was warned that their RICA policy of getting every cell phone owner to register would be tricky. And so of course it has been. The mania for governments to compile databases of its citizens has reached a particularly high pitch here in SA. “Combating Crime” is almost always the offered reason for the exercise and sadly that is definitely not working. In fact most of us suspect that criminals themselves have easy access to these schedules of who owns what and where they live, thus providing not only targets but identities to be purloined for their own fraudulent registrations.

The state itself seems uncertain about the value and whereabouts of what it owns. Within minutes of promising to sell R20bn of its assets in order to lend the cash to Eskom, it announced that it wouldn’t be doing that anymore. The reason for this about turn has not been revealed but my guess is that the asset register was a disappointment.

Our new minister of sport says that he is worried that boxing appears to be run out of a car boot and that other sports are in similar administrative disarray.  Without exploring how any minister can even identify poor administration, politicians ought not to be involved in what we boys and girls do for recreation, fun and exercise. Unless we are really lucky or talented, the costs are usually borne from our own pockets and so a car boot is undoubtedly cheap office space. Some sports, however, are so popular that commercial sponsors, eager to be associated with potential winners and to get the attention of their fans and spectators have found it beneficial to wave their chequebooks. But Minister Mbalula is now determined to use taxpayers money to “ruffle a lot of feathers” This is not a minority sport involving birds. It is a program that will demonstrate that when policy  replaces talent, skill and effort the outcome is  anger, disappointment and disillusion for just about everyone in the nation who yearns to wave the flag and celebrate a victory.

The ‘bokke substitution policy in action in Ireland last week looked suspiciously like an early case of feather ruffling. It must be very unsettling for the captain to see valuable and on-form players whisked off the field for no better apparent reason that there is someone on the bench who deserves a cap.  Wales is going to be a very tough one. Go ‘bokke. And go Alonso.

James Greener

12^th November 2010

UNBLOCKING THE RAND

The largest ever container ship to visit our ports glided past my window a few minutes ago and into Durban harbour. From what I could see it was pretty much empty and the news is that she will sail on Monday after loading 7000 containers destined for foreign parts. Well that’s a nice sign. Exports greater than imports, but that does mean more upward pressure on the rand which seems to worry lots of people.

Federal Reserve Governor Bernanke in Washington also caused a great deal of worry in some parts of the world by confirming that he has ordered the printing presses to roll off $600bn worth of crisp new paper money. This, he will lend to the US government who have decided that they will do the spending that their citizens have very annoyingly declined to do ever since they lost their jobs and the value of their homes collapsed. Although, as some commentators have pointed out, $600bn these days is not really such a large sum of money, (really?!) it has to go somewhere and maybe a good chunk of it will flow into the stock market. Therefore we have seen some hefty buying on Wall Street as speculators fill up with shares so as to have something to sell at much higher prices when the fresh money arrives. And then of course with more US dollars in the world that means that fewer units of everyone else’s money are needed to buy a dollar which is another way of saying their currencies strengthen. So here we go around again!

Soon after entering the stock broking world I received an unforgettable lecture from my mentor and boss all about the various rands that existed. In particular it was important to know about the financial rand – now sadly deceased, it was great source of broker’s revenue – and the blocked rand, which Minister Gordhan seems to have just killed off as well. As the years passed fewer people in the industry knew about the blocked rand and what you were not supposed to do with it. Being a great believer in human ingenuity and self-interest I was never convinced that the total sum of blocked rands languishing here in SA was as large and threatening as some calculations suggested. I was sure that leakage was rife and that most emigrants had long since found ways to get their money to join them in Perth or Toronto. Our quaint triple currency is now just a topic for some eager researcher to turn into a thesis.

I am appalled by the news that the JSE has effectively created a mini-board where investors of only a certain racial classification will trade shares that are similarly classified. Even if the listed companies feel compelled to go along with government’s terrible and wealth-destroying program of resource allocation by race, the bourse ought to be at the forefront of insisting that shareholders are equal.

The huge penalty slapped on Pioneer Foods for allegedly colluding to set the price of bread is very alarming. They must have really annoyed someone’s relative. For starters, doesn’t it take at least two to collude so why not treat all parties equally? Next, the fine extends far beyond a simple cash payment to the state. The company must pay a sum into an “Agro-processing Competitiveness Fund” which will quickly be plundered if only because no one has any idea what that means. The authorities have also told the company how to run its business in the next few years so that the punishment will be long lasting. They are delighted to show off with terms and concepts like “capital expenditure” and “margins” – clearly in the belief that the bread and milling markets can be controlled by edict. The company’s eagerness to settle and get the matter behind them is understandable and the share price seems certain that the company intends quickly to move on.

The Sharks may have won their last Currie Cup at Kings Park. Now the boss of SA rugby has turned engineer and declared the stadium to be deteriorating. This is merely code for “the owners of the unused soccer stadium next door have a problem.”

James Greener

Guy Fawkes Day 2010