BUNNY EARS ARE BACK

The exchange rate is not a simple thing to grasp. For a start we are being told the rand is disastrously and rapidly weakening and yet the numbers being paraded on the TV and in newspapers are getting steadily larger. This week there was a great deal of fuss when the number 11 appeared. This was because it now takes more than 11 of our runts to purchase a solitary greenback. Actually buying or needing forex is not a common experience for most South Africans. Even in Cape Town – which everyone says is like a different country -- the people use the same money, so what’s the fuss?  The main difficulties with our cash is that we never seem to have enough of it, and the new Mandela series bank notes seem to wear out and get dirty quite quickly.

Sadly of course the effects of needing more and more rands to buy one measly US dollar will soon enough get felt in everyone’s pocket. Most stuff – critically fuel – is priced in dollars. In fact our currency has weakened more against the pound sterling in the last few weeks than against the USD. Fortunately, except for holidays, not very much we buy is priced in pounds. With the notable exception of Scotch Whisky!

Some analysts are warning that the forthcoming inflation will prompt the Reserve Bank to tug on the “Increase Interest Rates” lever. But just adding 50 basis points or so to the return on a bank deposit will not dispel the growing perception that security of ownership of assets is declining. People are once again displaying a preference for assets held offshore where there is less opportunity for the government to suggest redistribution strategies.

Here in KZN the old vehicle number plating system that quaintly revealed in which city the vehicle is registered has survived up until now. But this year, car owners must change over to the provincial system in use elsewhere in the country. The reasons offered for this inevitably costly change, range from the asinine (too colonial) to the obviously illogical (better control). The real reason is bound to be related to a relative who has won the rights to be the sole supplier of the new and expensive number plates. As an incentive for us to welcome the change, the new plates will carry a picture appropriate to our province. What will that be? Sunset at Nkandla? Dusi Canoe Carriers? South Beach on New Years Day? Cable way in the ‘berg? Leopard skin ensembles?

This week it was discovered that the sculptors of the somewhat overly imposing bronze statue of Nelson Mandela just unveiled in Pretoria had secretly embellished the icon. After being denied the convention of signing their work, the artists crafted a very small and all but hidden model of a rabbit in the great man’s right ear. How this delightful addition was discovered is unknown but officialdom has ordered that it be removed .The artists claim it is their trademark. This fuss is somewhat reminiscent of the brouhaha about “the rabbit in the thorn tree” several decades ago when FNB was forced to alter its logo after someone alleged that the bunny allegedly lurking in the silhouette of a flat-crown thorn tree was an ANC symbol. One would like to think that Madiba himself is quite pleased with his companion.

It really is high time the government closed the Department of Sport. After a particularly poor showing the national soccer team was blasted by the minister who realised there was now no chance of a photo op of him hoisting the CHAN trophy in time for the elections. Sport is solely the preserve of those keen and fit enough to play, those clever enough to advise from the stands or the couch and those generous enough to sponsor our efforts. There is absolutely no need for politicians to be involved except as players or fans. And this is true worldwide. Watch developments at Sochi.

James Greener

Friday 24^th January 2014

WHO WILL BUY OUR RAND?

Our poor little currency is really getting clobbered. Fortunately no one in charge has suggested that the Reserve Bank ought to be in there defending it. If they tried the speculators would whistle through the nation’s foreign currency reserves in a heart beat. Equally no one has yet dared to admit that perhaps foreigners and locals alike are disappointed with latest examples of a clueless leadership and the seemingly officially sanctioned waves of corruption and theft of public money. Every South African can tell a story of crime, corruption or incompetence more horrifying and disgusting than their neighbour. Attempts by the few straight law enforcement people to bring cases to court invariably collapse when it turns out that the evidence has disappeared or some other equally shocking excuse. Our democracy is moving inexorably towards the historically inevitable next stage which is dictatorship.

The files and dockets of evidence on the Libor fixing scandal in London have, however, not mysteriously gone astray. The people who are suspected of playing a part in this scheme are being meticulously hunted down. One website even offers a nifty dynamic graphic that displays the links between the various participants. Most non-market people will have little appreciation for just what a big deal it was that this nearly sacred benchmark interest rate was being manipulated on a regular basis. This was a very significant fraud being perpetrated against just about everyone who had money in a bank account. The size of the penalties issued so far and the alacrity with which payment has been made makes many of us very suspicious that the full story has not yet emerged. On second thoughts, perhaps there is a great deal of information which has somehow got lost.

The incident has also highlighted the quality and integrity of the data produced by and for the financial and economics industries. From such all-important block busters like a nation’s GDP and inflation rate and government deficit down to small but specific reports like the outcome of a mineral exploration or a due diligence test of a corporate, the degree of uncertainty is itself very uncertain. With that voracious maw of the internet demanding to be fed immediately and unceasingly the incidence of genuine mistakes is also increased and that helps to disguise the fakes and the deliberately misleading numbers

 Oddly enough however, the rand dollar foreign exchange market is probably sufficiently liquid and transparent for the rates at the time of a deal to be real and representative. This indicates that the sustained selling of the rand is also real and not a consequence of some short- term badly handled orders. The message is that people really don’t like our money.

Yet again my invitation to attend the annual talking shop in snowy Davos has failed to arrive. The great and good in the worlds of governance and economics will just have to manage without being asked difficult questions like where is the global recovery. And anyway I have a much better invitation to go and look at birds in St Lucia.

Skipping through the sports channels the sight of international soccer being played in a nearly empty stadium caught my eye. It turns out that this is a part of Chan, a tournament with a silly name being held right here in SA. Non-existent publicity coupled with a very poor choice of season has prevented Bafana from attracting home ground support. Some one will win but I doubt it will be us.

James Greener

Friday 17^th January 2014

A WOBBLY START BUT MANY MAY NOT HAVE NOTICED

Some people have obviously made a new years resolution to get as far away from the South African rand as possible. It is being slaughtered and has lost almost 4% against the US dollar and 2% against the pound sterling. The JSE index has also not started the year well, which indicates that some of the sellers of rands are also sellers of shares. Our self-awarded perception of being somehow special is being trashed and handed back to us on a plate. Unfortunately the electioneering has got off to an early and savage start and the words coming from the mouths of most politicians are doing nothing to suggest that we are anything other than very ordinary.

Our president boasts that he used to practice witchcraft against a large and loyal segment of taxpayers. The minister of transport’s reaction to the shocking death toll on the roads this holiday is to appoint a commission instead of firing every traffic cop. The minister of higher education dismisses the idea of a pass mark for exams and so insults and denigrates the amazing efforts of those pupils who did achieve the incredibly poorly named bachelors pass. Another official reveals the truth about the education system by suggesting that employers need to spend a year teaching people stuff they never learned at school. Like reading and writing. Some universities reportedly already have to do this.

 There has been widespread disregard for finance minister Gordhan’s request that officials curb their lavish spending habits. Luxury wheels are still being ordered with the excuse that The Ministerial Handbook allows it. The rewrite of this pernicious and wholly unnecessary pamphlet has long been promised, but obviously there is little incentive to do that quickly.

In fact that handbook should be replaced entirely with a simple letter to all politicians and bureaucrats which says: “Congratulations on your appointment to this post. Please remember at all times that you are a civil servant, employed by the citizens of South Africa who pay your salary which includes all the allowances provided for in law. Your employer is NOT responsible for any further expenditure on your behalf including but not limited to personal accommodation, transport, food, credit card bills, medical aid and provision for your retirement. Like your fellow citizens you must meet those costs from your own salary. Naturally as a taxpayer you may submit claims for all the permitted deductions when filing your tax return. Remember to retain proof of all expenditures to support these claims. Visits to the SARS offices must be in your own time. Should you feel that your salary is insufficient remuneration for your skills and efforts you are urged to resign and move to the private sector where, according to your unions, the pay is far better. Thank you for serving the people of South Africa.”

Apparently research reveals that the majority view amongst financial analysts in the US is that the economic recovery is starting to happen. Inevitably there are some bears whimpering that they don’t see it that way. Regular readers will be unsurprised to learn that I side with those bears. Globally the amount of debt which looks as if it can never be repaid continues to be a real, if very unfashionable, concern. There’s another one of those unseemly squabbles about the US debt ceiling coming up and that might unsettle investors.

And in this vein it will be interesting to watch SANRAL, the beleaguered e-toll route operator when it comes back to borrow in the bond market. Will it be able to show healthy cash flows capable of servicing the loans or is their system unable to collect from the many disgruntled road users?

The Australian cricketers arrive here in a month. They seem unusually chipper and confident that the Proteas are “ripe for the picking”. Certainly we have made it easier for them by not scheduling any matches at the Wanderers bull ring – another mistake by the suits that run our sports these days. Maybe we will need Jacob Zuma’s spells after all.

James Greener

Friday 10^th January 2014

IT’S NOT ALL THAT COMPLICATED

So what, really, is going on?

Well it seems that most of the world’s central banks – led by the Federal Reserve in the US-- have decided that it is their duty to ensure that no one, however reckless or stupid should be obliged to face the reality that many investments go bad. Very roughly speaking the rather mysterious previous role of the central banks was to be the lender of last resort to the banks  and then to keep a beady eye on how and to whom they in turn lent that money. Inevitably, however, from time to time a bank will get into difficulties by, for example, lending money to someone who forgets to pay it back or allowing the whizz kids in the trading room to sell cheap and buy expensive instead of the other way around.

When word of these problems get out, a queue of depositors, clamouring to withdraw their cash, appears at the front door of the bank. Politicians get uneasy when they see unhappy voters who these days have been led to expect that any mishap that befalls them is not their fault and that the government must protect them. Taxpayer’s money is then hastily distributed to ensure that all affected parties are comforted and that no one pays too much for their mistakes. This activity is termed a bail-out, a phrase frequently applied to keeping leaky boats afloat.

Unsurprisingly the cash collected from current taxpayers is limited and quickly runs out. So the politicians then instruct the treasury to borrow the necessary funds and so pass the consequence of their bad decisions on to taxpayers yet to be born. However, many of the usual lenders to government have been watching this development with alarm and don’t share the politician’s determination to prevent the natural processes of capitalism to cleanse the system of failed and foolish ventures. Normally a lender’s reluctance can be overcome by offering them higher interest rates on the loan, but remember that it has been decided that the price of money must be kept low, even by force if necessary, so that people can afford to borrow (which is where this all started – I know!).

Now the central banks return to the story. They have the rather nifty ability to create money with a simple dab at a keyboard. In a substantial departure from previous practice and policies, central banks in several significant western economies became buyers of government bonds in very large amounts. This provided those governments with the money to live far beyond their means.  The economic model that justifies this is founded on the belief that eventually all this cash sloshing about will eventually fuel surges in consumption, production, wealth and taxes. The latter will then be channelled into repayment of the loans and the globe will spin happily on its usual axis once more. May that be so and may it happen soon. Sadly so far there are only tiny hints that any of this is happening.. In the meantime and in preparation for that expected recovery, investors are paying ever higher prices for shares that others bought earlier much more cheaply.

Some of us are pretty uneasy about the glibness and neatness of this scenario but can yet offer no better alternative. We have plenty of time to think though, now that the Indians refused to play a third test. The Test program is a mess. It’s time the task of planning was returned to some old buffer at Lords in an Egg and Tomato striped jacket and tie.. The present lot of slick operators are too busy fiddling with the air conditioner buttons and checking that the bookies are on speed dial to get the program right.

James Greener

3^rd January 2014

ANOTHER ONE BITES THE DUST

The JSE’s share market bull is decked all about in boughs of holly, strands of tinsel and a torn and melting paper hat. But clutching a flute of something chilled and bubbly he is positively scampering towards year end. He is, however, unlikely to set a new high in the few trading days left to us in 2013.

But, after a year like we have enjoyed no one is concerned with these last pirouettes and sensible folk will be celebrating as well. Only the most committed of bears is watching for the fatal misstep that will herald the collapse in share prices so confidently predicted for so long.

Similarly there will be scant concern at present for the news that the US 10 year bond yield is edging up towards the 3% level again. Or that the dollar gold price has declined by almost a third in 2013. Here in SA, the faltering rand has protected us from much of that particular bear.

Our currency weakness, however, may turn out to be one of the more significant financial indicators from the past year. Demand for our little currency continues to be exceeded by supply. To what extent this reflects political concerns rather than economic developments is impossible to separate but undoubtedly unless this trend ceases soon, inflation will increase.

Now, with the Proteas playing an away game at Kingsmead, the humidity in the 90s and the condensation running down the Castle bottle there is no need to delay any further wishing all the readers of Tidemarks a really very happy and healthy 2014 and to thank you for your comments and interest through what has been a fascinating year.

James Greener

27^th December 2013.

BARELY ANY RANDS REQUIRED

The markets were quick to see that the Federal Reserve’s planned reduction in the rate of cash injection into the system was actually so small as to pose absolutely no threat to the continuing binge. The taper was a tiddler. And so the share price bull trots onward and upward even here on the southern tip. The currency, however, is experiencing a quiet but very severe mauling from the bear. The rand will now buy just 80% as much foreign currency as it did a year ago. It is superfluous to say this is alarming. People clearly no longer want or need rands.

This development has prompted brought the rating agencies to threaten or even hand out downgrades. Just to remind ourselves, these agencies are commercial businesses often paid by the very institutions they are rating. In general they have access to no more data about the financial health of that institution than you and I could find with a bit of effort. Their track record and integrity are not spotless and they have a weird multipoint scale to forecast what is actually a simple yes or no event, i.e.: Will the institution be able to repay the capital and interest on loans made to it?  That said, it is probably true that the financial landscape ahead is getting rather rocky. Particularly for public institutions whose customers (ratepayers and utilities consumers) are becoming really bad about paying their bills. To what extent this is a result of that well worn phrase “culture of entitlement” or is a simple consequence of the reality that costs are outstripping incomes is not easy to determine. The amount of the outstanding payments to municipalities is very large and there is no hope of it ever being collected.

Already the pre-election political squabbling has begun and no one is putting forward any plans about getting the country onto an economic growth path involving a far smaller government and a cherished and supported private sector. So far the differences seem to be about the fine details of equally ruinous and stupid policies of confiscation, retribution and distribution. Even those who should be capable of doing the simple sums involving wealth, population and number of taxpayers are choosing to ignore the facts.

In this atmosphere there is scant chance that the excellent recommendations of the Independent Commission for the Remuneration of Public Office Bearers will get adopted. The Commission feel that any public employee earning above a million rand per year should not receive an annual increase. What they should have added was that any minister or mayor objecting to this would be welcome to exercise their economic freedom and seek a private sector employer able and prepared to pay them what they believe they are worth.  There might be some terrible surprises in store.

Those dreaded gantries looming over the roads in Gauteng must be spewing out gigabytes of data. Reportedly it is possible to interrogate a website and for any registration number get a report of gantries passed and tolls incurred. If so, this must be providing very interesting information for anyone wanting to check up on who has been where and when. So far, however, the comments about the operation are mainly that some travellers are getting legal threats to pay before even receiving an invoice. And when will some revenue-hungry traffic department realise that the system can easily be used also to calculate average speeds and target motorists for that as well?

Main item for discussion at the bowling club this evening will surely be the report that the Sharks are thinking about adding fellow Eastern Cape native Luke Watson to their squad. Those who have already proudly paid for their season tickets to Kings Park might be rethinking their purchase. Hopefully by this evening as well the scenes from Wanderers on the TV in the bar will be more optimistic. Five wickets for 16 runs is not what one expects of the world’s top test side. The Aussies must be licking their lips. 

James Greener

Friday 20^th December 2013

WHAT’S THE SIGNING FOR A WEARY BULL MARKET?

It’s been 4 weeks since the last edition of Tidemarks and a careful study of what has happened in the markets in that time reveals little to write home about. Perhaps in the last few days the JSE has taken on some of the sadness that the rest of the country is feeling after the death of ex-president Mandela. The currency in particular is rather weak and against the pound sterling and the euro it is now lower than it was even in the 2008 crisis. What that means is that those of us still living in this dangerous but excitingly beautiful place will soon be getting emails from hitherto dismissive relatives demanding  to be met at the airport and ferried to a place where they can watch lions and elephants while ordering beer at less than a quid a pint!

Nevertheless despite this holiday time softening, the All Share index will still come in with a total return for the year of almost 20% which just about its long term average. Strip out the mining shares and it’s way better than that. The market’s industrial sector is growing earnings and share prices at a much faster rate than the GDP figure released a few weeks ago would like you to believe. Those of us who spent most of the year warily expecting the wheels to come off this bull market are totally discredited. Even without any especially good news about stable educated workforce, predictable business-friendly political climate and growing domestic and export markets, investors could not refrain from paying more and more for shares of companies battling with the converse of all those things. Being invested in the JSE has proved a so much better place for money than languishing in a bank account.

There fad of appointing directors and even executives with little or no knowledge and more importantly experience of the industry into which they are parachuted is not always a success. Champions of this practice are probably found mostly not running big successful businesses. The government is also very keen to see people in jobs where their reward far exceeds their contribution. The JSE has long embraced the practice and even in the days before its de-mutualisation there were non stock brokers  on the Committee. Most of these “external members” pitched up only on the day of the official photograph. Today the JSE is itself listed on its own boards and profitability for shareholders obviously comes before service to members. That this is true is shown by the appointment of a chairman who offers many skills, attributes and experience but unfortunately none of them appear to have been acquired in stock broking. Of course we all wish Ms Nonkululeko Nyembezi-Heita the very best in her new appointment but ask that she does take great care of our old and fragile exchange which is in great danger of being crushed by regulation and unimaginative bureaucracy. Watch the share price.

All this fuss over an interpreter who translated politician-speak into gibberish seems overdone. Just look what the poor man is usually required to translate at party rallies and government gatherings. The computer world has long had an acronym for it.  GIGO: Garbage in, garbage out.

Is anyone else uneasy with the outcome of some of international cricket matches played against teams from the sub-continent? There are frequently some amazing swings in form from one game to the next.  The press dutifully repeat the breathless warnings about the strength and potential of this or that team about to face the Proteas, but not long after the toss, the threats disappear. Or is it simply that our boys are just so very good?

James Greener

Friday the thirteenth. December 2013