DATA WATCHING

For the data geeks who think they can discern the future in the numbers from the past this was a bonanza week. Firstly there was the GDP growth rate for the last three months of 2014  and then there was the National Budget for the coming fiscal year. And then it’s company reporting season and a deluge of financials is flooding the newspapers, despite the JSE saying it no longer requires them to do so. Odd that.

As usual the more one looks into any published data the more one wonders what it is that the compiler of those numbers doesn’t want to reveal.  Minister Nene’s budget speech managed to get by without once using the “austerity” word but in fact this is what is going to happen. So far it has yet to trigger any reaction from the usual suspects but soon they will spot that the government will be taking more but giving less. The fastest growing expenditure item is the cost of paying the interest on the government’s debt. This year it will comprise more than 10% of the state’s total expenditure and of course there is nothing to show for it. Worryingly, even with his finest spin, Nene is forced to admit that this ratio could be over 11% in just 2 years time. No wonder he wants to cut civil servants’ spending on catering, entertainment (what!?) and venues by 8%.  Home Affairs department is to get 18% less than last year. This won’t help us to get all those unabridged certificates that are required.

In defiance of these calls for parsimony, however, the Office of the Premier here in KZN has appointed a consultant to run the “I Do Right – Even When Nobody is Watching” Campaign. Aside from the disturbing grammar, the idea that such a campaign has become necessary and furthermore is underway is dreadful. Why not simply fire anyone not doing right?

Nene’s audience seemed pleased with the announcement that for the first time in many years the income tax rates would need to go up by one percentage point. But how many of those MPs have now gathered that in their salary bracket that translates into about an extra R1000 a month in tax deductions?

Also growing by 10% pa is the sum allocated (R47.8bn) for paying the R330 per month child support grant. That means that we are a nation where more than 12million children (out of an official population of around 56 million) depend on a very meagre state handout to survive. What a scandal and disgrace for this country. The sole hope for these kids is that their parents get employment but the dead hand of the socialism is throttling us all to death.

Another eye-catching figure in the budget was the almost R56n that government hopes to collect this year from the fuel levy. This amount is about R11bn more than the National Roads Authority’s debt and once again it is very hard to understand why the levy proceeds, which have been paid by motorists anyway, can not be used to extinguish that debt and SANRAL can sell those ugly and contentious e-toll gantries around Joburg to a scrap metal merchant.

The 4^th quarter 2014 GDP growth was a very surprising 4.1%pa. The largest contributors to this still unsatisfactorily low figure turned out to be the manufacturing and mining sectors. Representatives from these areas seem bemused by the news. Investors however are thrilled and the JSE All Share soared to new highs so that February’s performance will be around 3.5%. The combined financial and industrial index (i.e. omitting the pesky resources shares) is up 27% year on year. The problem is that average earnings for the companies in that index are up only 15%pa. The valuation string is stretched really taut. Will there be a sharp snap someday? Probably.

The Proteas’ win over the West Indies this morning was very satisfactory. Our progress through the World Cup is reasonably comfortable. The Lions on the other hand are making a very bad start in the Super 15, although it was really unsporting of the Sharks last week to host them in several inches of water. Talk about a home advantage.

James Greener

27^th February 2015

WHERE ARE THE (TAX) BODIES BURIED?

The very entertaining but actually deadly serious standoff between those who think someone else should pay and those who have no interest in being the payers roils on in euroland. Forecasting the outcome of this tussle and then in turn the market response is keeping the talking heads burning the midnight oil. One can be fairly sure that almost no one will guess correctly how the whole shebang unwinds. On the basis of the “follow the money” rule – only in this case there isn’t any – the likely outcome is that the Greek in the street is going to be disappointed and markets will continue to behave erratically. Even the rand has strengthened against the euro.

The news that Arts and Culture Minister Nathi Mthethwa is leading a state delegation to Moscow to repatriate the mortal remains of two struggle stalwarts who died in Russia in the 1970s is rather dispiriting.  Firstly it shows that there really is no proper job for this ministry and its minister to do and like the department of sport needs to be closed down immediately. These are areas when the government needs neither to have any expertise nor to interfere, especially not with full-blown and costly ministries. Secondly it makes one wonder just how many renowned South Africans there are buried elsewhere who are going to be dug up and returned to the southern tip. Is this an appropriate moment to suggest that maybe we should enquire where Jan van Riebeeck is resting and see if he might like to be returned to the shadow of the mountain?

There is something very odd and rather mysterious about this alleged “rogue unit” operating inside the South African Revenue Services. What on earth can they be up to? Surely the only thing a tax collector does is ferret out both people and monies that are hiding from them. Does going “rogue” mean that the fellows in the unit had changed sides? Were they deliberately not looking, or perhaps they have unearthed some juicy prey? Will we ever find out or have they summoned that junior official to make another error and operate the jammer / shredder in order to secure the no-fly zone around the president?

 Now that parliament is underway,  the MPs will at some point be asked to debate and approve something known tortuously as the Protection, Promotion, Development and Management of Indigenous Knowledge Bill. Sadly, whatever it is, indigenous knowledge does not encompass how to run a power utility, create an effective education system, pilot a motor vehicle accurately or bowl a decent leg-break. On reflection the largest body of such knowledge probably occurs mostly in the realm of botany and has long been researched and recorded by the appropriate academic departments and drug research houses world wide. So now are they about to be accosted by platoons of bureaucrats with forms and orders? Cue a serious misallocation of resources when the politicians find out that Petri dishes are not indigenous.

Losing the first game at the start of the Super 15 season is invariably dismissed as “not a serious problem”. However, the lack of points early on has a sneaky way of applying extra pressure at the end when it’s all death or glory time. With both the Sharks and the Lions seeking their first win tomorrow at Kings Park, its going to be a horrid evening for me and I shall watch from the couch with a medical team on hand to open bottles and even switch off the TV if necessary. And then it will be a few snatched hours of kip before resuming the position for the Proteas vs. India match from Melbourne. This will not be a relaxing weekend. Thank goodness I’m not Duzi paddler.

James Greener

Friday 20^th February 2015

RED TEAM RED CARDED

Most of the talking heads seem to agree that last night’s chaos in parliament will mark the start of an ominous and disappointing phase in the nation’s political development. Almost everyone present in Cape Town yesterday behaved badly, even if was just in their choice of clothing. Apparently nearly every rule in the parliamentary book was broken. The ease with which “Honourable Members” are able to quote the number and wording of each paragraph in that book in support of their “point of order” is amazing. Equally astonishing is the firm adherence to the supposedly despised British traditions of gun salutes, mounted police and kilted pipers. The man who lugged the ceremonial mace into the chamber looked suspiciously like that sign language non-interpreter who embarrassed us all at Madiba’s funeral.

The whole unedifying farrago was arranged to allow the president to deliver his annual wish-list. Filled as usual with tortuous grammar to avoid saying anything definitive, he nevertheless appeared to outline many horrifying and blatantly investment-unfriendly ideas. For example, the plea for foreign investors to send us their money didn’t exactly mesh with banning them from owning property. The assurance that the energy shortages were being tackled with a plan to draw up a plan was not reassuring. There was a lot of talk about unlocking and revitalising stuff which should in the first place never have been locked up or allowed to die.  It seemed a sure thing that the markets’ reaction would be a sharp collapse this morning.

But they certainly did not.

The JSE has set a record high and the rand has not noticeably weakened against the US dollar (although it is fading versus the pound). So what the SONA debacle has definitely achieved is a complete disconnect between the fantasy world of politics and the real world of people making their own decisions.

It was rather startling to hear the Eskom CEO, Tshediso Matona boast that after just a few months in the job he now had a full understanding of that utility’s difficulties. Now this is a business in such trouble that it really can’t afford any time at all without a boss who knows what is happening. Even more alarming is the fact that for the three years prior to his new appointment Mr Matona worked as Director-General of the department of energy. What on earth do these bureaucrats do if it’s not learning all about the things they are supposed to control?

Those readers who live in the King Sabata Dalindyebo municipality (no, sorry, don’t know either) will be disappointed to learn that the free catering they have been enjoying at the past 13 development plan meetings may be coming to an end. Some dour killjoy has suggested that the R13m bill was excessive and the policy of “buying groceries” should be reviewed.

Apparently the folk who provide therapeutic massage with fragrant oils to their customers have asked the Competition Commission to allow the costs of such treatments to be covered by medical aid schemes. I shall watch the outcome of this request with great interest because it has long been my contention that the cost of the first cold beer on a Friday evening should also be allowed as a medical claim. If that’s not therapeutic then little else is.

My Canadian guests were delighted to draw my attention to the news that Edmonton has withdrawn from the bid to host the Commonwealth Games in 2022. Durban is supposedly now a shoo-in for that very dubious privilege. Nevertheless almost R100m will be spent on preparing the bid. The games themselves will cost at least R10 billion. The Canadians politely declined to subscribe to my private fund for distressed Ethekwini ratepayers and went on to ask if the violence and scrumming they watched on the TV last night was rugby. They seemed unconvinced when it was explained that the Super 15 starts only tomorrow. It’s also not cricket to have to get up so early to watch the world cup from the Antipodes. Why can’t they use proper time zones like we do?

James Greener

Friday 13^th February 2015

SITTING IN THE DARK

Just about every market index is bouncing around like a yo-yo. On the bull side are floods of cash washing over many economies from frantic central banks desperate to make people feel rich again. On the bear side is the plain fact that the supply of almost all commodities, especially energy and even the food ones, seem to be swamping demand and prices have fallen sharply. Producers of these things are feeling the pinch and it shows in the share prices. As always the sensible thing to do is mostly nothing other than keep an eye out for buying opportunities when a particularly bad dose of pessimism washes across the companies that are well managed and have great brands.

Broadly speaking the “austerity” that everyone keeps moaning about, especially along the bottom edge of Europe, is just a government decision to reduce the amount of money that they can give away to those citizens who claim the loudest that they deserve it. This decision is not the result of careful debate and consultation, but instead is the consequence of that government running out of money!

A very recent development in Greece where “austerity” had become especially unpopular is that a political party, with an identical lack of arithmetic and economic skills as our own EFF fellows, has been elected to power. Unconcerned by the paucity of tax receipts compared to desired spending programs, the new government has enthusiastically resumed the business of giving money away and thus has banished “austerity”. The reaction is that anyone who has recently lent money to Greece (most notably the diligent and prudent Germans) has quickly decided a) that they won’t do so any more and b) to sell at any price the IOUs (aka Bonds) they bought from the previous Greek government. This sell-off has caused Greek debt prices to collapse which is the same as saying that yields are soaring. Contagion is being felt in may other wobbly economies and even our own debt yields are pushing higher – though that may also be a result of the difficulties in our electricity supply and an absence of sensible political leadership.

This Euro zone debacle might be fun to watch from the distance of the southern tip was it not for the fact that our TVs don’t work. The power failures, caused by the ineptitude of the national electricity utility Eskom, have moved up several notches in their frequency and duration. Large swathes of the nation are without electricity for hours on end. There is something quite soothing about preparing to cook supper on the braai and to sip wine by candle light without the background hum of appliances but it will soon get annoying when the drinks get hot. Businesses and others who need power all the time are not so chilled and it is especially irritating to learn that nothing is being done about the widespread and blatant theft of electricity. More than one person has suggested that authorities should simply shut down supplies to any substation that has even one illegal connection trailing away across the veld. That should also occur in areas where electricity accounts are being simply ignored. Let's see if peer pressure by the law-abiding has any effect. Or are we all simply content to grub around in the dark at the level of the thieves and malcontents?

Apparently last year about R320m was spent in SA on "super-luxury" watches. For a nation where time and punctuality are not thought particularly important that seems rather odd.

Matters got rather rowdy at the AFCON tournament in Equatorial Guinea when the home side lost the semi-final (which by some accounts they were lucky to reach). It may however be mild compared to the sports we could witness next week in parliament when JZ is scheduled to deliver a State of the Nation Address. In a rather boring repeat of the demonstrable falsehood that they have come to the chamber to work, Julius Malema and his rabble will likely disrupt proceedings again. In itself this may be no bad thing because SOMA too is likely to be full of lies about achievements and progress the government have chalked up.  It would be fitting if the lights went out somewhere during the expected melee.

James Greener

Friday 6^th February 2015

WASHED OUT

At a ratio of nearly 27 barrels of oil for a single troy ounce of gold – a millennial high – prospects for our gold rich, oil poor nation should be amazing. Instead, however, we are wondering how to keep the lights on, the national airline solvent, the broadcaster honest and the citizenry from attacking each other. The most recent spur to the financial excitement, which includes rising prices of both share and bonds, was the announcement by the European Central Bank that they are unspooling the fire hoses and will be spraying money into every corner of the euro zone at a staggering rate of 60 billion euros a month for at least 18 months. Just 1 week of that would wash away our fiscal deficit! The majority opinion is that this massive intervention is a good thing, but the price of gold, especially in euros, has risen sharply. Does this suggest that some folk feel safer in a hard asset?

Meanwhile over in Zurich, the Swiss Central Bank chose to give up pretending that it knew what the right price of its currency should be and turned that job over to the markets,. This brave and good move was quite unexpected and resulted in several speculators becoming seriously holed below the water line and sinking without trace in minutes. Let this be a warning for those who feel tempted to respond to the breezy invitations to become a currency trader that appear in our media from time to time.

The Davos extravaganza is becoming rather annoying. If the advice, opinions and solutions offered there by the allegedly intelligent and powerful were any good, the condition of the global economy would improve with each passing year. Instead, it most definitely does not. Taxpayers and shareholders are of course footing the bill for the politicians and executives who feel that a snowy background confers gravitas to their waffle. Carefully timed for this shindig, a well known charitable organisation barely managed to hold back the tears while announcing that their research has revealed that rich people own far more stuff than poor people. Just identifying this astonishing and unsuspected inequality was not enough, however, and it naturally triggered an avalanche of demands that governments must redistribute wealth and tax every one and everything into submission.

This proposal of course makes the completely erroneous assumption that politicians are the best and most effective people to spend money that other people have earned. It is interesting to note that really rich people seem to prefer setting up their own charitable foundations rather than simply pay more tax and trust the bureaucrats to make sure it reaches the right places. Nevertheless there are plenty of rich folk ambling around Davos at the moment and every mendicant and his agent is desperate to get an invitation to attend to make their pitch. Number 1 is there together with the wife who made the most credible claim for looking good in skiing kit. Our delegation includes half a dozen cabinet ministers, at least one of whom has been on TV gravely explaining that the Eskom team decided to save money and not attend the jamboree! Has it dawned on someone that there are far more important things to do back home?

At last we are going to be given sight of the list of the 204 National Key Points which hitherto had been deemed confidential. We know that the president’s private residence, swimming pool and cattle kraal is on the list but there are bound to be surprises. Aside from ports, dams and power stations (if working) there’s probably not all that much else we would miss if they fell into enemy hands. Hopefully a few breweries and wine cellars will be listed as indeed should be Ellis Park, the venue for our historic victory over the All Blacks in the 1995 Rugby World Cup Final.

For someone who was at the unforgettable “438” defeat of Australia at the Wanderers in 2006 it was just a tad sad to see that record shattered this week. Oh wouldn’t it be great if the Proteas carried this form through to world cup starting next month? And also starting very soon is the Super Rugby series. Nearly unthinkable in this present heat though.

James Greener

Friday 23^rd January 2015

COME IN NUMBER 1. YOUR TIME IS UP

The world of money has fallen deeply in love with all things American. The US dollar just keeps on getting stronger. Many of those dollars are being used to buy government bonds. Lenders are seemingly satisfied that getting a return of just 2%pa for the next 10 years beats just about anything else available. Presumably the sentiment is that the US is in peak economic health with everyone employed and manufacturers and producers eagerly satisfying consumer demand. Or perhaps it’s just the ceaseless assurances from Federal Reserve Governor Janet Yellen that she and her cronies are far smarter than markets in determining the price of money and that there’s nothing to worry about. For more than 6 years short term interest rates in the USA have been kept at nearly zero. One probable consequence of this policy is that it has distorted price setting and signalling mechanisms all over the world. Even here in SA share investors have to pay more than 20 times annual average earnings for a company on the industrials or financials board. Over many years of testing this particular metric, it is clear that real value is available only when that multiple is half that number – as it was in 2008.

By Christmas time our Reserve Bank had put R134bn in cash notes and coins out there in circulation. Now some of this is lost for ever down the back of the sofa and quite a bit is being used up in Zimbabwe as well, but that still is a great deal of  money that’s spread amongst 53million of us. Say five grand each, excluding the children. Interestingly this figure is almost 11% greater than last year’s total so even allowing for inflation and population growth, on average we all had more cash on hand than ever before.  There’s a huge cash only economy going on below the official radar. This will be confirmed by anyone who has watched a so-called “bakkie-builder” at the hardware store paying for their materials with notes peeled off a roll the size of a polony. School fees also frequently call for settlement in the amount of several thousands and reportedly cash payments are not uncommon. A plastic shopping bag is the purse of choice for such large amounts of cash and the car boot acts as the ATM.

Dignitaries simply love to fill their days with events where they are invited to open things, make a speech, get photographed shaking hands with grateful and beaming lesser beings and then adjourn for refreshments. The news that there is to be an official opening of  a piece of beach down the south coast which has been set aside for those who like to get their kit off  when at the seaside, suggest that this one hasn’t been researched fully. What will happen? Will the adoring throng be naked? Will the politico cut the ribbon and then undress and plunge into the briny or play a spot of volleyball? Where will he or she put her notes when clutching the glass and plate of nibbles?  Will there be media coverage? This could be great fun. What most definitely is not fun is the sight of Transport Minister Dipuo Peters and her “entourage” of more than half a dozen officials holding a press conference to announce how badly her department is doing its job. The number of casualties on our roads will undoubtedly have risen even further before she reaches the usual and meaningless platitudes and assurances that in future there will be trained, incorruptible and diligent traffic policing. I wonder if there was a lunch afterwards.

There is something vaguely sinister and disquieting about the decision to publish the school leaver’s exam results by candidate number and to omit the names. Is this a precursor to the government using just numbers to refer to office bearers at the failed and dysfunctional state owned enterprises? After all, we already know that our leader is Number 1. Will we be told that Number 32 has stolen all the money at SAA? Or that the dog has eaten that Number 113’s  degree certificate.

I used to really enjoy watching the TV coverage of the Dakar Rally. Somehow now that its in South America it rather different. Still very dangerous though. The pyjama games against West Indies begin tonight. Hopefully these will be tighter than the tests turned out to be.

James Greener

Friday 9^th January 2015

AND THEY’RE OFF

Astonishingly the All Share index managed to scramble back up out of the nearly bottomless pit it fell into last month. It ended more or less where it started 31 days earlier but after giving many people a severe fright. This enabled the total performance for calendar 2014 to reach 10.9%pa, a level that seemed impossible just days earlier. Nevertheless this is a lot lower than the long term average annual performance of just over 20%pa. But 2014 was the 6^th year in a row in which the JSE delivered a positive return – something which has never happened before in at least the last 40 years. Is this a sign that 2015 must surely be a down year?  Markets are notoriously disrespectful of precedent.

Unpacking the returns a bit, it is intriguing to note that despite seeing a bank blow up last year, the banking sector index romped in with a 32% total return. Are the survivors really making so much money? Many of us distrust (and even dislike) Telkom so it’s dispiriting to note that it single-handedly drove the fixed-line index to a 150%pa return! With a current market capitalisation of some R36bn, merchant bankers are likely queuing up outside National Treasury waving proposals for the complete privatisation of this now suspiciously overpriced government asset. The Listed Property index reveals that shareholders enjoyed a 27% return last year and the Health Group index came up with 36%pa suggesting that something may be being mispriced in this industry. Unsurprisingly the mining index lost 15% in 2014 with platinums and coals down 31% and 27% respectively. Sadly this is one forecast many will have got right as the situation at the start of last year was not promising and everything seems to be stacked against this industry

It is fashionable to wail about the state’s financial situation. The most recent cause for concern is about alleged corruption and favouritism at SARS, the nation’s tax collecting agency.  However, over the past twelve months, total revenue collected amounted to R930 bn, which is more than 11% greater than they reported a year ago. Clearly those of us who don’t have the contacts required to be dropped quietly from the SARS address list are digging ever deeper. On the expenditure side the equivalent figure is R1 104bn which is just 7% higher than the comparable amount for the prior period. In the utterly unlikely event that these growth rates were to hold for the next 6 years, the minister of finance in 2021 would be able to boast of a balanced budget! Obviously those of us still looking for a bad news story can point to the fact that currently for every R100.00 that SARS collects, the departments and ministries spend R118.71. It would certainly help if the politicians and their employees were a bit more parsimonious in their spending habits.

The unprecedented collapse in the price of oil, mankind’s largest expenditure item should begin soon to be noticed in the prices of everything that requires transporting.. Already indignant letters in the media are demanding that stores ought to be slashing prices on life’s essentials such as bubbly and watermelons. Is there any sign that airlines are trimming their fuel surcharge? Undoubtedly producers and distributors are going to enjoy this opportunity for as long as they can and they will be surreptitiously supported by the beneficiary of value added taxes i.e. governments. Only properly educated economists understand why deflation is a bad thing. The rest of us are happy to see the prices of everything drop; except of course, the price of our own labour.

While it certainly is great to see the Proteas playing test cricket at home this summer there seems to be a spark missing among the opposition West Indies side. Pity really. Oh well one can still watch with half and eye while updating the new diary with the Grand Prix dates and the two world cup schedules. This year has a great deal of potential to either raise or crush our spirits while seated on the TV couch. Two world cups and the Afcon trophy in the cupboard by year end is an exciting prospect.

James Greener

Friday 2^nd January 2015