HOUSEY-HOUSEY

It seems to have gone all quiet in Europe for the moment. There have been no promises to “fix” economies, no bailouts worth mentioning, just the steady background hum of bankers fixing things and leaving.  Have the problems all dried up? Has everyone, especially in the warmer regions of the continent, agreed to work harder, retire later, save more, borrow less and pay their taxes?  Very unlikely. Perhaps it’s the holiday season taking hold. There is still plenty of unease knocking about. Yields on short term German bonds are now negative. That means that investors are so relieved to find somewhere safe for their money that they are now actually paying a government to use it. It is in fact ominously peaceful on the markets worldwide. In the US a volatility measure is way down.

We bears are sure that it will soon become more widely recognised that most of the planet is slipping back into a slowdown where activity levels will be lower than they were a year previously. And those levels were not all that high to begin with anyway. The excited headlines about local construction companies starting to see light at the end of the tunnel may simply mean they are digging the tunnel rather than being paid to do so. Outrageously a large construction company went bust this week, sunk by unpaid bills owed by the government.

On the JSE we are still learning about the new dividend tax and how discouraging it is especially for small savers. Our tax regime can’t be far off from loading the last straw onto the back of the camel.

You can’t get decent service anywhere. Even if you own a Maserati, the number plates just keep falling off. Don’t you hate it when that happens? And then the cops stop you and discover that you are a politician with a history of pricy car problems and the press gets hold of the story and now everyone wants to know how you can afford to drive a set of wheels like that. As if it’s any of their business. I mean how else do you deliver services to your constituents if you don’t have transport? 

Banking is obviously a really difficult business. No one who is not a banker seems to understand how hard it is to take deposits and lend money. On the one side there are  depositors who believe that, if they put their cash into the care of a bank, it will be there when they want it back again  And the other side is a matter of making folk understand that if they borrow money, they must at some stage pay it back. Keeping both sides of this deal happy is a nightmare. Just this week Minister Nzimande told the banks that they should invest in low cost housing. Why he picked on the banks is unclear. He probably does not understand either banks or investing. Few depositors would be keen to see their bank using their savings to build or buy cheap houses. While putting roofs over the heads of poor people is a noble project, it is not often seen as an investment. Investing normally suggests that a return will be available. Those unfortunate folk who are in need of low cost housing are rarely able to offer much in the way of what might be called an acceptable return. That is why governments step in and use taxpayer’s money to placate voters who need shelter. Where, I wonder, does Comrade Nzimande keep his own spondulicks and what would he say when his bank explained that his cash had been invested and now was all gone? Perhaps as a Communist he would set us all a good example and say that housing people was an excellent investment. He would have a point.

There’s nearly 12 hours of back to back Super rugby tomorrow. Die-hards have plumped up the cushions on the couch and laid in stocks of refreshment and healing unguents for bruised buttocks. My own interest is diluted by the realisation that not even complex arithmetic using imaginary numbers can help the Lions now. So go Sharks.

James Greener

Friday 13^th July 2012

CURRENCY FOUNDERING BOSON FOUND

Most of the market’s first half performance of about 7% was established in just the first few weeks of the year. Since then it has been range trading either side of a pretty steady mean, although of late the ranges have expanded a bit. This has triggered excited talk of a “break-out” with bulls naturally opting for the upside kind, citing the ever lengthening spell of negative real rates of return for cash and the need to be invested in shares.

 It is now clear, however, that the euro will not survive. The experiment is drawing to a close, derailed by impurities in the ingredients that were shaken up together in the test tube. The experimental procedure does not describe what to do under these circumstances and the proposal of adding more and more of the strongest one has foundered because the lid of that jar is now screwed on very tightly. The most vocal supporters of the euro now are probably only those whose careers, pensions and reputation are embedded in the founding principles and institutions of the countryless currency, and anyone who has recently converted their dollars, pounds, yen or even rands into euros. The end will perhaps be swift and unexpected but certainly messy and painful – especially for the weak and vulnerable. Powerful and rich entities will even now be planning and engineering graceful strategies to preserve their wealth and positions. In due course the euro will be no more than a deep pile of data to be mined by graduate students of the dismal science in search of a doctorate.

Similarly the story of how a determinedly ideological and wilfully vindictive government regime managed to destroy a national minerals industry will also one day be read with astonishment. Hopefully, here and there, hidden from view, there are actually some areas and enterprises where our state is indeed helping citizens risk their own money and time to extract minerals from the ground. But out in the open air of public knowledge there is very little evidence to suggest that the leadership is able to accept that the mining business is about extracting, processing and marketing their products in a way that simultaneously maximises both client demand and their own profits. In the process they create jobs and pay taxes and royalties. Sadly our leaders can’t accept that almost any intervention in such a system developed over centuries is very likely to break it.

So now we might have the reason why the authorities in Limpopo are reluctant to deliver those textbooks to the schools. They are waiting to see if the nanosecond long blip of energy announced this week by the propeller-heads at CERN is the right boson. After all, Professor Hawking has lost his bet so the education department does not wish also to be labelled a bozo for supplying the wrong information to the pupils in their tender care. They are awaiting Dr Higgs and The Quantum Mechanics to confirm that The Standard Model is secure and may be shared with the eager young minds of the Northern Province. The rest of us meanwhile can marvel that so many people are needed to make large hadrons collide. Here in the kingdom, large trucks collide with each other and just about anything else at a worrying and tragic rate and no one seems to learn anything.

Durban is jam packed with punters who have travelled far in order to bring their money for a nice seaside sojourn. The Durban July horse race tomorrow will ensure that most of that money will remain here after the visitors leave and no one seems to be complaining. There is however, widespread unhappiness about the disjointed feel of the resumed Super 15 competition. This break in the competition is not a successful idea and even the staunchest Sharks fan is bleak about the Bulls match tonight. Add in the Wimbledon finals, stages of le Tour and the Silverstone Grand Prix and it is clear that the old couch and remote is in for a beating this weekend.

James Greener

6^th July 2012

BANKING ON A BAIL-OUT

Why is it that just about anyone who shuffles large sums of money around for a living is either very foolish or devious or tragically, both? The share prices of banks got hammered this week when firstly local outfit ABSA admitted that more of their customers are finding that they have less money than month and so are skipping the mortgage payment. ABSA as the nation’s largest mortgage lender is suffering from rocketing bad debts. Meanwhile, its parent Barclays in London admitted that their traders had found ways to buy cheap and sell expensive that might not be entirely legitimate or fair. Additionally, JP Morgan Chase (remember the London Whale?) think that their spell of inattention might have torched $9bn and not the trivial $2bn first announced. Presumably many others took the opportunity of this heavy smoke screen to release their own unpleasant snippets

It is human nature to believe that bad news if kept hidden will get better before it has to be revealed. Unfortunately the very efficiency and transparency of free markets that most of us praise and call for ensures that mistakes and malfeasance does not remain hidden for long. However, the bear which was released by these dribbles of news was eager to return to hibernation and his savagery has been limited.

Not even the reckless and foolish pronouncements from the ruling party’s current policy conference about the roads to economic freedom are causing much market damage so far. Threats of socialism and interference are always near the surface. Public Enterprises Minister Malusi Gigaba, urged State Owned Enterprises (SOEs) to “invest beyond what their balance sheets afford so that we can stimulate economic activity through the investments of the SOE's”. Only the Honourable Minister knows what this means but it is likely to be bad news for tax payers who by definition are the equity shareholders of all SOEs. This arrant nonsense comes hard on the heels of muttering that savers in future might be compelled to place some of their money with the state. The idea is not new and when last implemented was known as “prescribed assets”. This was deeply unpopular with fund managers but oddly was not actually a total disaster in terms of performance. However, today yields are at generational lows rather than at the highs which were occasionally available way back then and which often rescued the more gung ho managers from their penchant for dodgy equities.

But none of these ideas for getting the unemployment down and growth up compare with the far simpler one of scrapping the statutes and regulations about the allocation of resources, all of which are predicated on the utterly flawed assumption that there is always someone in charge who knows what is best for you and your money. Sadly even the much admired Finance Minister Gordhan claims to have spotted places in the economy where the markets “won’t go” and so thinks it is sensible to send taxpayer funded expeditions to explore these obviously dark and unprofitable areas.

There has been a big show-down at the OK Corral (aka Tombstone Tshwane) and both the United Sheriffs’ Society and the SA Institute of Sheriffs have been closed down. The survivors have founded the SA Sheriffs Society. Big hats, dusty boots silver stars and hot lead? I hope some one caught it on camera.

A very clever friend has suggested that instead of resorting to a very unsatisfactory penalty shoot out to find a winner after 2 hours of result free and often score less football, the shoot-out should be held first. That score would remain on the board until the first real goal is netted in normal play or used it to resolve a draw at the final whistle. Think about it while you watch the Lions stage their late season surge against the Stormers this weekend. Le Tour is about to start and at Wimbledon it’s like standing under a baobab tree. Big seeds falling.

James Greener

29^th June 2012

AND WE NEVER EVEN MENTIONED GREECE

The All Share Index has been playing a great game of tease. This week it even set a new all-time high at 34 800 and pretended that it was about to make a significant upside break-out in total defiance of my forecast. But that failed to materialise and a sharp and nasty correction has trapped a few bulls. The talking heads have offered several excuses for this behaviour. The dead giveaway that they too have no idea what is happening is that the same excuse is offered for both the up and the down excursions. Headline grabbing news of the moment is the decision by the US Federal Reserve once again to gallop to the rescue with sacks of money and buy US government IOUs (sometimes called bonds). In turn, the government can use this fresh money to rescue their favourite causes – mainly banks. This puzzles ordinary folk, as rightly they wonder why organisations that cheerfully admit to losing a couple of billion, merely because their counting isn’t very good, deserve such largesse. Hence the yo-yo behaviour of the share prices as investors try to decide if all this market intervention is good or bad news.

Another very puzzling decision right here at home is the announcement that our delegation to the G-20 meeting in Mexico agreed to pop US$2bn of the nation’s foreign exchange reserves into an envelope and leave it on the hall table for the International Monetary Fund to collect when they next come down this street. Only the brightest and most sophisticated analysts and economists are able to explain why this is a good idea. Apparently it will make SA look all grown up and cool hanging out with the good guys and doing what they do. The rest of us who can think only in terms of piles of folding stuff languishing in a vault are baffled. That the cash is destined for something called the “firewall” only adds to our misgivings. We will watch carefully to discern what return this “investment” delivers.

The bureaucrats have come up with a proposal to create yet another database of names and addresses to which we will have to supply copies of our documents. This time it is the present national driving licence system which has been declared suspect and forests will die to provide the paper to fill another warehouse. And of course provide a rich source for anyone contemplating a spot of identity theft.

This comes on top of the allegations that a similar database of cell phone users has utterly failed to reduce the crimes that were going to be eliminated by knowing where everyone lived. Similarly, despite all that FICA stuff the baddies still appear able to open and operate bank accounts that are more effective than a laundrette, while I may not trade for a client of 25 years standing who has recently moved house but failed to send in the inevitable certified copy of proof of residence.

And then there is the ever growing list of restrictions on the sale, advertising and use of cigarettes and liquor. When I last checked these were still perfectly legal methods for calming the nerves after dealing with stupidity and the state happily pockets revenue from their use. Surely there are many other life-threatening dangers which are not the result of free choice to which the government more urgently ought to be directing its attention. We would like to see the perpetrators of violent crime being pursued at least as vigorously as someone who leans over the garden gate with a fag in their mouth and a beer in their hand.

At last the Solstice has passed and we are into the season when the shortening evenings get filled with ever more sporting extravaganzas from around the world. The ‘bokke are on the verge of scoring a hat trick against England and yet there are fools fretting that this winning side does not meet some irrelevant distribution standard of province and parentage. Anyone who wishes to support a national side that rarely beats the opposition is directed to the soccer team which is delivering a master class in providing poor value for their sponsor’s money. Go ‘bokke. Make it three out of three.

James Greener

22^nd June 2012

TOP BEAR vs. TOP GEAR

 Despite the recent excursion down to 33 000 the JSE All Share index has really done nothing decisive or even very terrifying for four months.  Such periods do of course have to end though when, and in which direction, one should not predict. Nevertheless, I can see no reason why it should move up sharply in the near future and rather think that the next piece of surprising and market-moving news is likely to be bearish. It seems that world economies are slowing down sharply and we may experience a longer and deeper recession than the titchy one that visited us in 2011. That one, however, was ended when politicians discovered that they could order their central banks to open the taps and spray voters with money. It’s a sure bet they will try that trick again if they need to. Would it work again?

It is quite obvious that the designers and champions of the euro currency system have no idea about what to do for their failing experiment. Its success was very dependent upon member states and their citizens being honest and truthful about their situation and obediently following the rules. The inevitable triumph of human nature to pay as little as possible while claiming as many benefits as possible has now come to the fore and the experiment may need to be shut down. The politicians’ belief that they alone are able to allocate resources in an equitable and acceptable manner is exposed for the idiocy that it always is. The sole solution on offer involves ever increasing amounts of debt but the problem is that the lenders are now alarmed by the possibility that they may not get repaid and the borrowers have become used to and in many cases utterly dependant on someone else’s money. Now even we distant observers, perched on the southern tip are feeling the effects of this meltdown as our customers and friends in that part of the world are increasingly preoccupied with their domestic issues and are not all that interested in our problems or products.

But maybe our woes are about to be solved by the re-shuffle of the cabinet announced by President JZ this week. Unfortunately, many of the really incompetent and ignorant faces are still there, albeit some are now lurking under different hats. There is a certain schadenfreude in seeing that a particularly arrogant lady has been moved to the portfolio where her immediate task will be to deal with the civil service wage claim and probable strike. The pres also appointed a new police commissioner, opting this time for a woman with no policing experience at all but reportedly a whiz at administration. If nothing else she will hopefully compile a neat list of unsolved cases – on a very long piece of paper. Can it be right that she already is using the title General?

Still on the government’s speed dial is Professor Stiglitz, the economics Nobel Laureate who gets trotted out to deliver appropriate opinions more or less on demand. He has just starred in the latest episode of the never ending soap opera of the state trying to find a way of stopping Wal-Mart bringing their damaging free market methods and ideas to SA. The professor helped draw up a plan where the American retailer donates a vast sum of money that will be used to identify which local producers are unable to supply the store with the goods they need. Bureaucrats and certain economists are unable to grasp that this is exactly what the marketplace is doing 24/7.

The road to the bowling club this evening may be closed. The Durban Council have unconvincingly attempted to demonstrate that the city will benefit from spending public money to get the three stooges from the Top Gear BBC TV show to drive fast cars aggressively around the streets of the city. The organisers may have forgotten the Umgeni Road Taxi Association also use these roads and are inimical to the idea of road blocks at peak hour. Watch for the 14-seater Toyota minibus with the coloured wavy stripes.

The ‘bokke did alright last Saturday, but England are going to be especially pumped up tomorrow at Ellis Park. I must remember my ‘bok cap.

James Greener

15^th June 2012

FIXING THE FIXERS

This week it felt as if the government’s hatred for and onslaught against wealth and capital and private enterprise had been ratcheted up several notches. There was an endless parade of talking heads boasting about meetings that had “identified needs” most of which were about telling business what to do with their own money. There was one small beacon of sense from Minister Manuel however, who complained about the state’s penchant for interference – particularly the recent veto of the Telkom deal with some Korean money and skills. Undoubtedly in due course he will receive a severe lashing for stepping out of line but so far the fury and indignation at his effrontery has rendered the critics mute. The saving grace is that virtually none of these “needs” will receive any attention beyond appearing on the agendas of yet more meetings. The leaders appear to be beyond caring or embarrassment that the nation now knows that they can’t actually fix anything that needs fixing.

Ratings Agencies are rather innocuous members of the market landscape largely indistinguishable from the research departments of investment institutions. They do much the same job of pretending to be able to forecast the future, in particular whether or not an organisation or even a country will be able to service their debts. They probably have no more raw data than other analysts, even in those cases where the entity being rated has arranged and paid for that rating. Nevertheless, their track record of success is not noticeably better and like any of us in this business they have made some great blunders.  Their impact and importance is inversely proportional to the experience and sophistication of the user of their results. Thus they tend to send politicians screaming for help when they make an unpopular call which questions policy. And so now there is proposed legislation to allow the state to charge and punish anyone who makes a rating call that might in some way be suspect.

Now most analysts will stoutly maintain that their work is as robust and rigorous as the combination of data and skill will allow. Their product is only an opinion about future possible outcomes and is clearly undeserving of being hunted down by some bureaucrat who believes it to be inexact or mischievous or unsupportable. The market will do that long before the law does.

In the next few years the country’s conventional TV broadcasts – mainly from the state broadcaster SABC – will change over from analogue to digital and if you really want to watch that stuff you will need to get a box to plonk on top of the TV set to convert the signal. Those viewers who subscribe to the satellite broadcasts that require a dish antenna are very familiar with this decoder box. Naturally government is terrified that its propaganda might not reach the audience after the changeover and so has identified a large number of poor households who, despite already owning a TV and paying the annual licence fee (?), will receive a share of a R2.7bn handout to help them buy the converter. And of course the state is also drawing up a list of manufacturers who will be permitted to make these boxes. Why? This smells of special deals for chums. I wonder how long it will be before cheaper knock-off converters appear in the stores? And if you don’t have a box do you need a licence?

The Lion’s easy win over the Sharks last Saturday was a wonderful reprise of the Currie Cup final but will thin out the number of people prepared to talk to me at the bowling club tonight should I mention the topic. The ‘bokke will find England a bit harder to subdue so perhaps I should let the conversation dwell on tomorrow’s test at Kings Park. Are we really fielding the best 15 rugby players in the land?

James Greener

8^th June 2012

THE EXTENDED BEAR MARKET

At first glance, the -3.59% total return (including dividends) for May was not as bad as the September 2011 figure of -3.61%. However since the 1^st of April the tax man has been grabbing 15% of our dividend income and so actual returns for most of us will be lower than suggested by the indices. Actually it was a rather dreadful month, with very few of the very many indices that are now calculated to baffle and entertain us, able to add much during that unusually long month.

The real tragedies lie in the mining sector where now the platinum sector has followed gold mining into the abyss. To what extent this destruction of value is directly due to government interference will be argued for years. Was there too much – and see what has happened – or maybe there was too little – also see what has happened. Official involvement was either lethal or useless. There are no mining skills in government. That much has been proven.

It is wonderful news that SA is going to host a large chunk of the world’s next giant science project. The Square Kilometre Array is indeed a huge piece of kit – well lots of pretty large pieces actually – and in common with all big science these days will generate torrents of terabytes of data. Handling this will require somewhat more connectivity and bandwidth than that available from an off-peak dial-up line through the Calvinia telephone exchange. Together with the giant optical telescope at Sutherland also spewing out digital data at a mighty rate these projects should have been seized upon by the near-monopoly Telkom as a business opportunity to lift their revenue and profile. Instead the sorry story continues with the news that Telkom will be replaced in an international index by Mr Price, the clothing store and Sharks sponsor which now has a superior market capitalisation. Mind you the utility is subjected to exceptional helpings of useless interference from even the cabinet. Today they were told to send their new best friends from Korea straight back home. Bafflingly it seems we need neither their money nor their skill.

Basel 3 is not a remake of a TV sitcom with Mr Cleese as the embarrassing guest house owner. It’s even funnier. It’s the name given to the current edition of a set of guidelines about risk levels and solvency ratios and other good banking stuff that bankers think up for themselves mainly in an effort to impress politicians and divert them from trying to perform the same but undoubtedly far more damaging stunt. The problem with Basel, however, is that bankers and taxi drivers are very similar. Just as in the e-tolling saga where some classes of driver think that someone else ought to pay for the roads they use, there are bankers who would like others to pay for the risks they take. What seems prudent in one place is claimed to be ruinous in another. For mere mortals it is a mystery but predicting higher banking charges will result is a sure winner.

The “little fella” Grant Henry’s advice to Argentina on how to beat the big three when they join the expanded Tri-nations competition later this year is simply to score more tries. That’s real wisdom and has, I hope, been noted by the Lions ahead of the Sharks fixture at Ellis Park tomorrow. In the meantime one has to sympathise with Lion’s coach John Mitchell’s plea to be told the truth about next year’s SA teams line-up for the Super 15. So far all we are getting is SARU mathematical gobbledegook about how five is divisible by six with no remainder. And shouldn’t it be The Four Nations competition anyway if the Pumas are coming along?

James Greener

1^st June 2012