MANY PRICES. HIDDEN VALUES

Supporters of the curious belief that committees are far better than markets in setting prices will need to explain to the rest of us just what effects they expect from adding 25cents a year to the cost of borrowing R100. Allegedly this week’s adjustment to the repo rate is going to send a message to all those who are supposedly conspiring to raise the rate of inflation above a level which has been deemed appropriate (by another committee, naturally). Always assuming of course that we can agree just how much inflation is happening and what is causing it – two very unlikely events.

So far the share, bond and currency markets seem utterly indifferent to the result of two days of strenuous thinking at the Reserve Bank. They all do still have an air of edginess about them, however – especially the currency market and especially against sterling. Whether this is because the apparent official campaign to discourage tourists is having its largest impact on potential visitors from the UK is hard to prove. Certainly the anecdotes in the media suggest that SA as a destination is falling off the radar screens. The minister responsible for this strange policy has yet to offer a credible reason for his stubborn stance.

Those who believe that gold is merely a resource like all other minerals extracted from the earth will be smug to point out that its price is also falling sharply  together with the prices of just about every other “hard” commodity. Notably however, the prices of most food commodities have been steadily rising in the past few months. Explanations for both phenomena are plentiful and many have the common factor of just how big and significant China has become when working out who consumes what. And the suggestion is that they are eating more and building less. If any omniscient committee of bureaucrats saw this coming they failed to do anything effective about it and now the markets are sorting it out for themselves. Here in SA the steel business is in survival mode with the iron ore miner (Kumba) missing a dividend and steel manufacturers mothballing plants. Somewhere here, however, there are bargains to be found.

With the demise of the steam locomotive perhaps the desire of every small boy to be a train driver has declined somewhat. But not for the guys who run our railways it seems. They have been spending wads of cash on bigger and newer trains and in the process teaching the rest of us new words and meanings like perways and gauges and depots. Allegedly, however, some of the new toys don’t quite fit the existing layouts and we are not yet invited to come and play with the new kit. Extra track and adjustments to the platforms and scenery may be needed. Unkind folk are suggesting that it may turnout to be a tremendous waste of money. That’s a great pity because one of the features of driving through the great South African landscape is the paucity of freight trains on the railway lines running alongside the truck-filled road. So much stuff including people ought to be travelling by train.

The interfering fingerprints of politicians are all over the design of next year’s Super 18 rugby tournament. The increase of three over this year’s complement is achieved with the inclusion of the Kings from the Eastern Cape and a side from each of Japan and Argentina.  Unsurprisingly the Aussies and Kiwis have rejected any change to their local arrangements and South Africa will be the victim of a biased restructuring of the competition. Cricket fans are also battling to find enjoyment at present as the Proteas are being forced to take the long routes in Bangladesh. At least the pleasingly many South African connections in the Tour de France are providing some pleasure for this couch sitter.

Why, do you think, does the Johannesburg City Power Department need to call for tenders from Gym Freelancers (Locum)? And don’t tell me it’s because the full-time one is on leave!

James Greener

Friday 24^th July 2015

HEADS UP

Yet again it’s wonderful to watch the efforts of officials who believe that mere citizens don’t know what’s good for them. This time it’s taking place on the Shanghai stock exchange where sellers are so keen to exit their holdings that they are outdoing each other by making ever lower offers. Buyers naturally are holding back to see what happens but this is alarming the people who think their status and positions empower them to know better. It has been rumoured that sellers are being threatened with arrest! Several other markets have felt the warm breath of the bear on their necks and the Dow is pretty much at its low point for the year. Adding to the joyous mix is the fact that the New York exchange went off line for a while with a “technical glitch” which the easily excitable have claimed is evidence of a computer hack. The JSE has seen some fairly epic swings this week, but is still more than 5% up for the year, although some traders will be in the burned fingers ICU this weekend.

The fact that the Greek debacle sets and then duly misses so many absolutely final deadlines for resolution simply shows that no one has any idea what to do next. As is the case in almost every financial disaster, lenders are confronting the awful truth that they have lent far too much money to borrowers who now have neither the resources nor the intention to repay it. There can never be a mutually satisfactory solution in this situation and the sad thing is that all the grave comments about this being a lesson for the future will not prevent the next one. Spending money you don’t have is a wonderful pastime and in recent years imprudent lenders (banks) have far too often been rescued by governments using (prudent) taxpayer’s money. The Greek situation runs across national boundaries which complicates things enormously.

So far there has been no answer why The Jacob G Zuma Foundation appears to be sponsoring a sport as exotic and removed from South Africa as battery powered racing cars. Obviously there must be exciting financial flows for someone and a bet that our president is a beneficiary is likely to be a far better call than the favourite in last weekend’s Durban July horse race.

Buried in the unsurprising story about utter failure of an expensive scheme to train municipal ward committee members how to do their job, is a reference to the poor catering. It seems that as well as funding the classes, ratepayers were feeding the people attending the course. However, insufficient and bad food was a reason for the poor attendance and disappointing results of the scheme. Nevertheless, those who have stuck it out can expect to receive a certificate, which is more than the chief engineer of the passenger rail company can produce. A witness aboard the inaugural celebratory demonstration run of the new and very expensive imported train set reported that the locomotive damaged the overhead power lines because it may be higher than regulation. The chief engineer, who up to that point had been boasting of his team’s role in designing the shiny new kit, is now under investigation for perhaps not being all that he claims.

Strike season is upon us, although so far incidence and effects have been minimal. The least momentous, however, will probably be the threatened industrial (?) action by the 2 039 headman in KZN. These worthies cost the taxpayer R171m a year and it is unclear exactly what work it is that they will stop doing if and when they carry out their threat to strike. Allegedly their importance lies in their ability to deliver suitably compliant and instructed voters to the ballot boxes at election time.

At least I don’t have to choose which cap and jersey to wear when joining the braai to watch the ‘bokke this weekend. Tens of thousands of expert amateur selectors and coaches will be offering opinions on the team as this is the first run for the national side in a year that peaks with the World Cup. My cardiologist has suggested that I exercise restraint and imbibe only herbal tea. Well hops are a herb.

James Greener

10^th July 2015 (which is celebrated in Liverpool as Beatles day!)

PLACE YOUR BETS

With just a few exceptions like some severe losses among Chinese shares and patches of untidiness on Wall Street, most markets are trucking along blissfully unaware that the bears are gathering. It’s nearly impossible to make a case for adding to any holdings of any of the large capitalisation shares on the JSE and the bond market still looks very rich to those of us who can remember yields in the ‘teens.

Unsurprisingly it was the taxpayers who got the worst of the deal in the sale of the government’s large shareholding in Vodacom to the state employee’s pension fund. Apparently it was “agreed” the fund would acquire the investment for about 90% of its market value. That this little “gift” amounts to about R3bn, shows once again that most people playing with these numbers actually have no grasp of just how much money this is. Shortly after this news, we were treated to the sight of the tax commissioner and his staff padding about in t-shirts bearing the message “Together we make tax easy”. Since there is absolutely nothing easy about handing over our money to an incompetent and corrupt regime unable even to keep the lights on, this message is an outrageous display of contempt towards the sector of the population that pays the most while being subjected to ever increasing discrimination and prejudice.  

The government will use most of the approximately R30bn raised by the sale to make yet another loan to Eskom. Most of us suspect, however, that the first call on this cash will be for the top brass to secure their ridiculously undeserved bonuses and that the regulator’s warranted refusal to grant the utility a further huge price increase  will be trotted out as an excuse for more and longer power cuts.

Among the other people who didn’t receive the money they were expecting this week were those who have made loans to the Greek government and to Edgars, the local chain store. The official word for this sort of event is “default” and all manner of nasty things can happen once this happens. Chiefly of course it is that no one wants to lend more money to a defaulter except under the most strenuous terms. i.e. at high interest rates. An alarming aspect of the Greek development is the suggestion that the government has been eyeing the personal savings accounts held in local banks as a potential source of funds to keep things (like pensions and government salaries) going. This is not unprecedented but it is a very bad habit. It will be interesting to see if there has been a surge in demand for the so-called cyber-currencies like Bitcoin which are much harder for politicians to steal. It can be noted though, that the gold price hasn’t flinched. Edgars creditors are probably going to receive some of their money back in the form of notes printed by Edgars themselves. These are usually called share certificates.

Free market disciples are delighted by the operating model of the Uber personal transport service. It appears to be the near perfect marriage of modern communications and customer demand. Understandably there is considerable squealing coming from the traditional cabbies who are merely the latest occupation being required to adjust to technology. Their remedy is obvious. Local authorities however, are very alarmed that passengers don’t seem to care that their ride is neither licensed nor inspected and perhaps not even furthering the aims of “transformation”. This municipal concern is really about the throttling of a revenue stream as drivers and fares now have new ways to judge the quality of each other part in the transaction.

Now this is that weekend in the year when sport bursts out of every pore and the potatoes give the couch a pounding. There are horses, and tennis and cricket and rugby and bicycles and Grand Prix and golf and athletics and even woman’s soccer.  I notice that FIFA boss Sepp Blatter will also be at home in front of the TV and won’t attend the women’s world cup soccer final in Vancouver. It can’t be that he’s anxious about having his collar felt by the Canadian Mounties can it?

James Greener

Friday 3^rd July 2015

SCRAMBLED IN TRANSMISSION

The markets are pretending that they have recovered from the visit of the small but ill-tempered bear and only the rand / pound sterling exchange rate chart hasn’t reversed. Surely it can’t just be rugby fans preparing for their trip to the soggy island for the World Cup who are selling rands and buying pounds in such quantity? Barclays must be pondering their purchase of ABSA. So far, however, no large international bank has yet listed South Africa among the regions where they are withdrawing so they must making money here still.

Understanding the Greek situation is easy. One side has run out of money, the other has run out of patience. The various forecasts of what happens next are going to be tested. The answer is probably “not much”. Lenders are going to get IOUs instead of money and Greek citizens expecting a steady flow of pensions, salaries and hand-outs will likely be very disappointed. But it is likely that the euro will survive for a while longer, mainly because the European Central Bank has chosen to do something it’s not supposed to do and print money. For millennia this has been the remedy adopted by the rulers of empires and it will work this time too. The interesting question is: Which nation will be next? There are many candidates.

Once again Eskom has become the centre of attention with the publication of their argument in support of massive price rises. Several analysts have pounced on the numbers and gleefully demonstrated flawed assumptions, simple errors and perhaps even misleading nonsense. Here in Durban domestic consumers are paying just over R1.15 per kilowatt hour, a tariff which is 80% higher than 5 years ago. Eskom claims that the cost of the same amount of power from the woefully behind schedule and exorbitantly expensive new coal fired power stations will be R1.00 so clearly there is very little margin for everyone else in the chain to be able to afford the better things in life! Unless the regulator has the clout and resolve to insist that Eskom carries out a massive clean-out of its wasteful and profligate units and practices it seems inevitable that they will be forced to allow the egregious increase. Even some politicians have begun to notice and to complain that the utility is strangling the growth out of the country, but whether they have the knowledge and skill to craft a solution to the problem is doubtful. More candles please Jeeves.

So the date by when we had to stop broadcasting TV in a way which is no longer efficient and suitable, has passed. This ranks South Africa alongside a handful of nations who are also baffled by this new technology stuff. But not to worry, the minister has assured everyone that the government is right on top of the problem. For a start, she has visited those of our neighbours who have made the internationally scheduled changeover and begged them not to “leak” their smart digital signals across the border and interfere with the electorate’s ability to watch parliamentarians behaving badly and similar soap operas on their old steam-powered televisual apparatus. Part of the delay in implementing the changeover arises from the state’s intention to woo voters with free and subsidised converter equipment. Naturally this intervention will distort the market and the parties who hope to benefit from the mispricing that will occur are squabbling fiercely. Just another day on the southern tip.

With just one SA team in the Super 15 playoffs, many of us will have to suppress our natural instincts and support the Stormers. Hopefully they won’t be overcome by the occasion like the baby ‘bokke were at their U20 World Cup semis. So the US golf chiefs decided to mark the centenary of the Great War by playing this year’s US Open on a course that resembles a battle field from that conflict. Even if you are not a golfer just take a look at it sometime this weekend. Already there have been some notable casualties. For a moment it sounded as if the Vatican were entering a team in the Tour de France. But then it turned out that an Encyclical is merely a 200 page message about the dangers of carbon dioxide.

James Greener

Friday 19^th June 2015 (World Sauntering Day)

THE MORE THE MERRIER

At long last the “experiment” being conducted by central banks of holding interest rates at ridiculously low (negative even) levels may be coming to an end. Numerous doctoral students now have floods of material for their theses and the debate about the effectiveness and success of the policy will rage for years. Those of us who believe that even the price of money is best resolved in a free market will begin to feel a bit happier. Savers have had the worst of it and there is scant evidence that borrowers did very much more than use the opportunity to extinguish debts incurred a decade ago. Economic recovery has been patchy. A widely held theory maintains that higher interest rates tend to depress share prices. Present movements in the markets seem to lend support to that theory. The JSE is rather wobbly.

It will be surprising if Telkom’s plan to let a quarter of its workforce go doesn’t cause a great deal of labour unrest. It will surely not improve telephone line repair response times. Surely all government departments and state owned enterprises could also fire 25% of their staff. And do so starting at the top. A pair of photographs published on the web, show the official line-up of Obama’s and Zuma’s cabinets. The USA squad is sparse and sleek. But only a wide-angle lens was able to capture all of JZ’s top team. It’s now dawning on us that the plan to create millions of jobs is largely about making every government supporter a civil servant. If there’s any sort of problem there, well no one in power has spotted it yet

The snappy BRICs acronym that was coined a few years ago for four countries with similar economic potential is no longer very useful. The rot probably began when South Africa invited itself aboard and capitalised the fifth letter.  Despite the insistent claims, our mismatch with most of the other members is massive and the presence and contribution of our delegates to the meetings is probably regarded by the by the Chinese and Indian behemoths as a comedy slot by a potential (very) small customer. It remains to be seen just what benefits, if any, our nation gains from this club beyond a dodgy deal for nuclear power, medical treatment for Number 1 and the obligation to help fund a brand new development bank. Wouldn’t it be fun to learn that the others ran a book on which wife JZ brings to the junket each time?

At last the mystery of youth has been solved. There is no limit to being young. The ANC Youth League has scrapped the 35 years upper age limit for membership. After all, 35 was just a number and the rule was quite probably ageist. Now let’s wait to see if the ANC Woman’s League removes their sexist membership criteria. However, what is most definitely racist is the innovative and unusual government program to lend to suitable black farmers each a herd of 30 cows in-calf plus a bull. The debt is repayable with a similar sized herd in 5 years time. Successful ranchers could soon be reaping handsome profits if the bull is up to it.  The nice part is that the cattle are of the majestic and beautiful Nguni breed! 

Apparently our locational privacy is under threat. This is the newest and strangest reason being advanced for opposing the e-toll system. The problem is that the government could use the e-toll records to monitor our movements.  While this is true, cell phones also have that capability and can do so all over the world, not just on a few roads in Gauteng.. But given that the government can’t yet send out correct and timeous invoices for the tolls perhaps we have little to fear from any imminent queries about our suspicious journeys.

The rugby being played by the baby bokke is entertaining and gratifyingly successful, unlike most of Sharks’ games this year. Tomorrow’s match will be so hampered by emotional farewells that the Stormers have sent their B team reserves to Kings Park to wrap things up. There will be more tissues than tries you can be sure of that.

James Greener

12^th June 2015

OUR MONEY TAKES THE CHICKEN RUN

Already there are pundits saying that the bear can stop and return to its lair now and that 7% down in the last month is quite enough thanks. But just seven years ago market valuations were at a level which would be equalled currently only if prices fell another 50%. This shocker is merely the outcome of some simple arithmetic together with the assumption that company earnings stay more or less constant. But if earnings begin to leak away then all bets are off and even worse carnage might follow. It is worth noting that the decline is taking place in shares from all economic sectors. In the past few years it was often just the mining and resources counters which weakened. 

Unfortunately the runt and bonds are also taking a pasting this week. Money is definitely leaving the country, as overseas investors start to end their flirtation with so-called emerging markets. Proper pessimists might suggests that the new and overly onerous visa requirements for tourists considering coming to our freezing shores is reducing the demand for our money and so now a pound sterling will buy 19 rands. Wow!

This is all rather technical and decidedly gloomy and the probability of a sudden and lengthy collapse is quite small. Remember that research suggests that investors holding shares in quality companies with excellent managers and terrific brands almost never gain from selling those holdings with the intention of replacing them at lower prices. Rather just sit tight and wait to add to those holdings at leisure later on.

A decade ago Mr Schabir Shaik, the spectacularly unsuccessful financial advisor to the man who is now our president, Jacob Zuma, was convicted of fraud and corruption and sent to prison. Sadly he developed what was diagnosed as a terminal cardiac condition and was released on medical parole after serving just three years of his lengthy sentence. Fortunately sojourns in luxury game lodges and rounds of golf appear to have ameliorated the condition. But this week Mr Shaik requested a relaxation of his parole conditions in order to consult a medical specialist overseas. The more cynical amongst us wonder why he has not been referred to one of the Cuban doctors brought in by his former client. But perhaps Mr Shaik has other chores to attend to overseas.

The blattering that portfolios are suffering are nothing compared to the rapid decline in the fame and fortune of many soccer administrators.. The FBI, who until a few years ago didn’t even know what soccer was, have produced evidence and informants eager to confirm the extent  of the corruption practiced by  FIFA and its acolytes and associates. While most fans and players are certainly delighted with developments, there are pods of panic popping in plenty of places. Not least in South Africa where the government pushed Minister Mbalula out to the podium as the sacrificial spokesman. In his office, every dictionary and thesaurus is open at the word “bribe” in a frantic search to find a kinder word to describe the clandestine payment of money in return for benefits. His performances so far have been derisory and come hard on the heels of his colleague police Minister Nhleko’s explanation of why the president’s own cows and chickens compromise his safety. Maybe it really is time for us all to take to the streets in protest at paying taxes to these buffoons who treat us with contempt.

The Super Rugby tournament has reached that stage where the mental arithmetic wizards can command respect at the bar with the “ifs” and “thens” of which teams could make the playoffs. The rest of us are content to order another round and wait until it’s confirmed in the papers. In Formula 1 even the dead certainties can be derailed by team orders but it seems unlikely that anyone but a Mercedes driver will be this year’s champion. I wonder if the FBI has a file on Mr Ecclestone?

James Greener

5^th June 2015

THE BEAUTIFUL SHAME

The All Share index performance in May is going to come out around -3%. This is not good news.  The bear is definitely stirring. Only the really brave or very well informed are going to claim that this drop in share prices is exposing bargains. Company presentations to investors are full of hand waving and hyperbolic spin avoiding the bad numbers in the penultimate slide. Even Statistician-general (what a grand title) Lehola could not find any lipstick that would stay on the 1.5% GDP growth pig. The daily trading ranges of prices in the rand and bond markets are particularly wide. This is a sign of confusion and indecision as speculators try to profit from intraday volatility rather than ride longer term trends. Winter may have arrived here at last.

One of the big market stories of the moment is that the regulators are pretty sure they can smell the stench of traders fixing prices in the foreign exchange markets. Indeed every now and then one of their quarry breaks cover and proffers money in exchange for being left alone. For some reason these payments are not expressly referred to as fines or admission of guilt forfeits but pretty much that is exactly what they are.

The thing about trying to manipulate markets is that your competition usually detects it long before the regulators do. And the nature of the game is that they will seek a way to exploit that suspicion and to profit from it before it gets truly exposed and blows up or is shut down. The real “crime” in these affairs is usually the reluctance of the mangers and supervisors to delve too deeply too soon into why a particular trading desk is doing so incredibly well. Some traders are just very good – for a while. But inevitably the gaps and profits will get too wide and too high to conceal and then, as the saying goes: “The money runs out before the paper runs out”. And then the compliance crews arrive and concoct another round of controls to make it ever harder to buy cheap and sell expensive and in due course this industry too will get regulated to death on the grounds of “safety and fairness.” But life is neither of these things.

The high pitched whirring noise that started a few days ago has a number of sources. Firstly it’s the spinning of a web of total nonsense about why the taxpayers should pay for a great many improvements and features at Number 1’s private home. Then it’s the din of paper shredders and track covering devices at the homes and offices of anyone involved in securing the 2010 Soccer World Cup for South Africa. And finally there’s the giggling waffle from President Zuma himself as he sugar-coats the latest set of dreadful economic numbers.

Actually the one encouraging item that we can take from the terrier-like display by the US lawyers on FIFA’s case, is the report that no way could be found to extract the USD10m bribe money from the National Treasury and it had to be redirected from FIFA’s own funds. The sad thing is the astonishing similarity of denial and innocence displayed by presidents Sceptic Blather of FIFA and JZ of South Africa. Assuredly both are fully aware of and implicated in their respective pits of corruption and malfeasance and both are displaying that same impeccable mien of puzzlement and hurt.

In the next few days a man will fly a flimsy but huge plane across the Pacific. The aircraft carries no fuel and the flight could last 5 days.  It is powered entirely by electricity stored in batteries and charged by sunlight collected by photo voltaic panels draped along the wings.  Clearly there is a critical balance of sunlight, battery capacity and sleep deprivation. Rather similar to South Africans coping with load shedding. It’s a wonderful project that celebrates and demonstrates human ingenuity and skill. Quite unlike government activity in South Africa.

Early on Sunday morning the biannual migration of Comrades runners from Durban will take place. Almost as momentous will be departure of Bismarck and Jannie (du Plessis) from the Sharks. It’s going to get rather emotional and damp eyed at Kings Park these next couple of weeks.

James Greener

British National Biscuit Day (how could one not mention this?)