UNAPPEALING ACTION

Everyone has been certain for so long that Governor Mboweni would lop another 100bp off the repo rate today, that when he actually did so, nothing much happened in the markets. Another certainty for me is that central bank actions almost never have desired results. For example now that interest rates are being cranked down again are we to gather that inflation is under control and back in the target range – which for some unfathomable reason is not simply zero. There are quite a few folk who would dispute this idea, starting with some angry trade unionists who say that the food companies are making too much profit. If this is the case then instead of making a fuss they should rather be having a quiet word with whoever is running their pension fund portfolio to top up on Spar and Pioneer and Tiger Brands and share in these profits.

On the topic of inflation did you see that the one rand hike in the cost of buying a lottery ticket helped to raise the inflation rate via the category of “recreation and culture”? Leaving aside the question of just how so small a sum can have any impact on the overall cost of living for the man in the street (does Mr Average buy 100 tickets a week?) I would be interested to know if having a stock broking account is also classified as either recreation or culture.

The current craze among real economists is to spot the “green shoots’ of recovery that signal that the recession is over. There have been several of these sightings recently, but we bears are not impressed by the excitement that was caused when the “second derivative” of US house prices turned positive. I think this is easily outweighed by the idea that Chrysler is probably bust and that US shoppers are staying at home. The report that in 2009 the world will use 15% less steel than last year is yet another statistic that passes through the screens but it is quite a horrifying decline.

The first results of the so called stress testing of the US banks were sort of published in a way that was supposed not to alarm anyone. Nevertheless they reveal that several of these establishments have insufficient cash truthfully to call themselves banks in future. Concern and embarrassment all round until some compliant and gullible donors can be located. Taxpayers are always a good first call.

Almost as terrifying was the idea to strafe Manhattan with Air Force One in order to get good photos of President Obama’s new wings. Understandably they are pretty jumpy about low flying airplanes down there. The organisers of our very own presidential inauguration party are phoning around for prices on a spectacular fly-past over Pretoria at some suitable moment in the proceedings. However, given the length of the guest list and the banquet menu there may not be much money left for more than a microlight and a small flag painted on the pilot’s forehead.

The strength of the rand continues to amaze almost everyone except for exporters who are complaining that it is making life difficult. The best the government can do for them is to point out that the textbooks say that lower interest rates should weaken the currency and that the MPC are sure to smack them down again when they next meet after the IPL final. In the meantime perhaps we all should be turning out supporter’s kit to flog to the amazing crowds who are pitching up to watch the circus.

Am I alone in wondering what our old nemesis Umpire Darryl Hair would make of  the rubbish that is being passed off as legal bowling action at this tournament? The sub-continent already got the rule book edited a few years ago to admit some pretty dodgy stuff, now it seems that the whole chapter on bowling has been scrapped.

James Greener

30^th April 2009.

THE GOVERNMENT IS INVITED TO FOLLOW ON

I am becoming increasingly lonely. Not, let me hasten to say because I am all alone at my desk with a harbour master’s view of the shipping approaching Durban harbour. But because my views and opinions these days seem to locate me firmly in opposition to most prevailing trends.

For example I am still quite sure that the bear is not yet finished with the world’s equity markets despite the rather exciting bounce that most exchanges have enjoyed since the multi-year lows recorded just two months ago. Perhaps the fact that the JSE has achieved about the smallest recovery of any, may be because it was waiting for the outcome of the election. But the rand has been suffering no such doubts. It is now at a three year high versus sterling. I have noted before that money must be flowing onto the country. Can the World Cup be having an effect already? Here in the kingdom we are not hosting any Confederations Cup matches so maybe the excitement is passing me by.

Politically I have never been anywhere other than in opposition to the governing party. I believe that only the threat of losing their seat on the gravy train has any influence on those in power. This week’s election result has revealed the disturbing fact that the smallest ever proportion of voters is dissatisfied with what the current clutch of politicians are providing in the way of government. By the time of the next election in five years the present regime will have been in charge for almost half as long as the previous bunch but I am sure that we will still hear the legacy word being trotted out when blame needs to be laid. Mere improbability has never stopped a politician from claiming anything.

Two more public holidays and long weekends are upon us and I would guess that not a great deal will happen in the last three days of the month. What the bureaucrats can quite rightly claim, however, is that at least two of the holidays in April were not of their making. In fact they predate most regimes around the world. It has been a dreadful month for those who need to cover the overheads but reportedly retail activity has not been seriously disrupted by all these breaks. Unlike many years ago the pubs and bottle stores were thankfully open on polling day and a roaring trade was recorded. The victors had some serious partying to attend to.

Only a few companies are reporting lower earnings and reduced dividends. There is little evidence to prompt anyone to join me out on the lonely limb of concern that we are in for a long and deep recession. In the UK the government has responded to declining revenues with a budget notable for some fierce tax increases, some of which were disguised as punishment for cheeky bankers. Considerably more folk than the allegedly greedy City types are going to feel the pain of keeping civil servants in employment, tea and biscuits. As one press report noted, the fashion a few years ago of taking one’s company off to London for a listing may be turning out to be less beneficial than anticipated for the executives.

My grasp of Indian geography has been improved by the presence of the IPL on our cricket pitches. I am also fascinated by the market anomalies that are showing up where player performance is not being matched by their pre-tournament pricing. And have you watched some of the team owners juggling several cell phones at once presumably trying to keep in touch with the bookies?

James Greener

24^th April 2009.

TAXES AND RANSOMS

It is now about six weeks since most stock markets were setting multi-year lows and the bears were riding high. The recovery since then has been almost as sharp as the decline and the price charts are displaying a fine example of a V shaped pattern. Excitable analysts are citing this as evidence for a similar recovery for the world economies and that the recession will be equally short lived. I don’t think so. Unlike the immediacy of share market prices, all the measures of economic activity take absolute ages to be collected, massaged and published. Officially determined slowdowns will be declared only long after those of us in the real world are trying to cope with the absence of credit, customers and clients. There are precious few signs that any of those are surging back yet. V shaped it is not.

I was fascinated to see that Goldman Sachs, that incubator of many of the US government’s economic brains, managed to sell $5bn worth of brand new shares. Apparently they located investors who are eager to participate in the anticipated wonderful profits of that will flow from that business once it uses the newly raised cash to pay off the state loan that it needed a couple of months ago to keep solvent. The new investors may have failed to notice the remark that the bank wished to resume its practice of paying breathtaking bonuses to the “talent” and that it could not do so until it repaid the government bail-out. I trust the talent will send suitable thank you notes to the new shareholders in due course.

Two of the more prominent issues on the globe these days are piracy and toxic assets. I am amused and delighted by the suggestion that there might be a joint solution to both scourges. That is to load a suitable vessel with not only these probably worthless pieces of paper but then to put aboard the originators and ratings agencies that once believed otherwise. Tow this tempting prize to the Horn of Africa and await developments. The ransom negotiations will take years.

Even 18 working days this month is too many and I am off to the ‘berg for a long weekend. The next edition of Tidemarks will be published under a new political regime here on the southern tip. Pre-election promises and manifestos are usually discarded as soon as the last ballot box is sealed so we have no idea what awaits us. Our likely new president is a jolly man much given to singing and dancing and I don’t recall any pictures of him sitting at a desk, writing or signing stuff. In this way his public appearances are much more entertaining than the rather metronomic side-to-side head movements of President Obama as he reads yet another beautifully crafted speech from the autocues. I do suspect, however, that even without the polished delivery, our new man is also strongly socialist and is confident that his plans for distributing money are far superior to the ideas of those who actually earn it. In other words expect to pay more tax.

The rand has been one of the strongest performing currencies in the last 6 months or so. This can only be because money is flowing into the country. Are we seeing the effect of people returning home after being forced to leave the rapidly slowing previous growth nodes like Dubai? Curious.

Sports pages carry a picture of a Bollywood personage soliciting my support for his team in the forthcoming IPL because they are “the best looking”. That pretty well sums up the dilemma I have with franchise sport. And there are Australians in most of the teams. Yes I know. There is an American playing for the Lions.

James Greener

16^th April 2009.

WHAT NEXT? ONE MAN ONE PASSPORT?

Now that is simply amazing. The main men and women of the world got together in London this week and came up with the number of $175.00. This is the amount, which if given to each and every living soul on this planet, will make the world’s financial problems disappear. I haven’t yet got to the part in the news story about where this money will come from, but I did note that Treasury Secretary Geithner warns that “progress is going to be uneven”. By this I suppose he means that the million million dollars will be handed largely to cronies and crooks who have already confirmed a cavalier and careless conduct when caring for cash. Those of us with savings and a tax number should probably not be watching for a cheque in the post. Rather we should prepare for ever more evil methods to use the latter to white-ant the former.

London was also the venue for anyone with a cause, a silly face mask and time on their hands to run about the streets of the City looking for golden geese to slay. I think that it is something of a duty to society for those with time between lectures, which the public have helped to pay for, to raise awareness about issues that someone else is trying to deny or obscure.   For example, Deputy Finance Minister Nene has told us that he was met by a limo and cold champagne on his recent visit to our northern neighbour. A placard or two drawing his attention to the plight of the Zim refugees ought to remind him that his lavish welcome in Harare was definitely unusual and not unrelated to the possibility that he was arriving with a sack of real money.

Nonetheless the sight of the great and greedy greeting each other so warmly and nodding at each other’s speeches sent the bear into hiding. The JSE along with most exchanges enjoyed a spectacular week with some excellent volumes and excitable analysts declaring that the bottom is passed. The frightening facts however, continue to accumulate. Businesses are shutting down; jobs are disappearing and about the only consuming taking place is of borrowers by their debts. The bear will certainly return.

Despite an upbeat announcement from National Treasury, the raw and simple numbers show that government revenue collections are slowing down very quickly while expenditure is accelerating. The price of votes these days is terrible. The demand for bond finance is going to surge (Anglo American bagged $2bn in the US this week) and I think that means that long bond yields will have to rise. If you have money, be wary about lending it to anyone long-term.

Inexplicably but gratifyingly for some, the rand is very near 6 month highs against most currencies. As a result, rand hedge shares have been particularly disappointing and mostly failed to participate in the current euphoria. Those who believe this strength will be reversed by the election of a president with such finely tuned race detectors that he can tell how many passports each citizen owns, should investigate the New Rand exchange traded fund.

The IPL cricket circus to be held here in SA might be a good time to run an economics experiment and to offer the various prize winners gold coins instead of US dollars. The sub-continent’s citizens are famous for their interest in the metal. A gold mining company used to offer a krugerrand to batsman who smacked a ball directly into their advertising board at the Wanderers. Sounds a whole lot more attractive than a thousand sheets of Mr Bernanke’s newly printed paper.

James Greener

3^rd April 2009.

THE BULL SLIPS IN OIL

When you get down and have a close look, the All Share index pretty much went nowhere this week. This will have surprised and disappointed several people, especially Governor Mboweni who had gone to all the trouble of ordering extra biscuits and summoning the MPC a month early and getting them to support his plan to lop 100 basis points off the repo rate. While the prospect of cheaper money did very little for the share market, the currency actually strengthened quite a bit especially against the euro this week.

This too is not really supposed to be how the rand should respond to a rate cut. Those of us without years of training in economics and finance had been led to expect that investors would race to buy shares in those companies which sell items that are sufficiently costly that people need to borrow money to buy them, and now with cheaper money … Well you know how the story goes. Perhaps the inflation numbers which showed that food is rapidly becoming such an item is causing a rethink about cars and houses and flat screen TVs

And then over in the USA details of the shape of the next lifeboat full of money to be launched began to emerge. The plan is for taxpayers to lend cash to private businesses that would like to sift through the garbage in the basements of the many, obviously stupid, enterprises who failed to distinguish tasty assets from toxic assets. These new publicly funded geniuses have nothing to lose but someone else’s money and presumably will select from the dross only those IOUs that they hope might deliver. The rest they will leave in the dumpster. There’s a small but very interesting matter of deciding the price to be paid by the smart to the stupid for the allegedly toxic asset that now actually does have a buyer! Presumably the plan is then for the new owners to spruce the assets up a bit and then sell them on for a profit (who to you might wonder?) and repay the government loan. Cynics like me note that this does nothing to inoculate the truly toxic and if the plan fails, the number of troubled enterprises just grows larger.

Back home it seems that an outfit named the Gauteng Enterprise Propeller is in trouble. This has nothing to do with the uproar around the farewell present for the departing CEO of the state airline. As usual the details of the misuse of public money are murky but it does inevitably involve lavish travel and catering in overseas destinations instead of helping poor people propel themselves into enterprises. An equally mysterious organisation named the South African Fryer Oil Initiative are getting into a state about extra virgin (never did follow this one) olive oil which apparently isn’t even olive oil let alone any kind of virgin. So beware anyone straying from the traditional pap and wors fare.

Whoever has the awful task of listening to all these tapped telephone conversations must have had an especially bad week. Can you even imagine the hours and hours of argument about where or what Tibet was and whether or not this Dalai Lama chap was related to Dali Tambo. All South Africans must be deeply saddened by the diplomatic gaffe of refusing this man a visa and then embarrassed by the feeble and nonsense excuse for doing so.

While it is excellent news about the Indian cricket tournament coming here I wonder if much thought has been given to how dew-soaked the fields become at night at this time of year. That trick when the mower tows a thick rope around the outfield is very funny but not much good at drying the grass. Which takes me sadly to the Lions who I fear will not be lifting the Super 14 cup this year.

James Greener

27^th March 2009.

QUANTITATIVE EASING – STRETCHING BY NUMBERS?

Central bankers are busy fellows these days. Most of their energy however is going into combing through dictionaries looking for words that will disguise what they are up to. Their objective is to make money sufficiently plentiful and cheap to entice people to resume their earlier profligate ways and to borrow and to spend. As well as actually handing it over to anyone with a pulse and a suitably bad record of decision making, they are keenly pursuing a new plan of buying pretty much everything that anyone offers to them. This stunt has also been labelled “growing the balance sheet”. The phrase suggests to me that they hope to convince everyone including themselves that much of the rubbish that they are buying actually has a value and that someone, sometime will want it back. I don’t think so. In most cases the cash that they are doling out is freshly minted. Little wonder then that the US dollar has started to go softer again. The helicopters promised by Governor Bernanke are now airborne.

I am amused at the outrage expressed by the politicians who are watching what capitalists do with money they have begged from the government. They use it to keep themselves in the style to which they have become accustomed. After all, their own businesses had failed to do just that, so what else is one supposed to do with the bail-out booty? Socialists are shocked. This was not their plan. They failed to spot that with labour already in oversupply, there was no need for the bosses to allocate any of the state’s handout to the workers (aka voters)

There will be some satisfaction among the bureaucrats, however. They will be noting the worldwide stock market recoveries and congratulating themselves on turning the investors’ mood around. Here on the southern tip our own central bank has declared that the Monetary Policy Committee will meet soon and often and presumably they will wield a big chopper on interest rates. Some enthusiastic younger analysts are talking about local rates being halved by year end. The excitement has seen the All Share index soar effortlessly above 20 000. I am content to wait and watch for pullbacks to resume the nibbling that I have suggested before. I am certain that the bear is not through with our markets yet.

Also never far away are those who are pleased to aid government in any of its efforts to give away public money. Local Government Minister Baloyi is reported this week to be worried that charlatans are claiming benefits in the names of the deceased and issued the following request. "We really call upon citizens to confirm your alive status". Does this mean that 50 odd million of us need to troop off to a dingy office somewhere and breathe on a mirror? If the government can’t keep track of who is alive and who is dead, it just deepens my suspicion about the accuracy and usefulness of most other statistics compiled by them. This week, even the despicably efficient revenue service (what a misuse of the word) gave an encouraging hint that it too might be losing the plot. It emailed warning notices about taxes due without specifying the taxpayer to whom the notice referred.

Anglo American plc gave up on gold mining this week and was lucky enough to find someone eager to take their last shares in AngloGold Ashanti off them. AngloGold have reported a loss in 10 out of the last 13 quarters so despite the emotion of this separation it does seem like a smart idea. Maybe they will resume paying dividends again soon.

It is far too early to get optimistic about the cricket at Newlands and the only reason the Lions are not at the bottom of the Super 14 log is that they have played 2 fewer games than the Cheetahs. At least the sun is out again here in the kingdom.

James Greener

20^th March 2009.

BULL IN FULL FLOW

Incredible amounts of wealth have been destroyed by the decline in the prices of almost every asset as we descend into this deep and terrifying depression.  One exception has been government bonds where the so-called safe-haven status of a piece of paper issued by the same legislature that was responsible for overseeing the aforementioned crash is in great demand. Investors apparently feel that the guarantee of getting back their capital and a tiny bit of interest is meaningful. But I worry that the repayments will be made in currency that in most cases will be freshly printed.

This explains why people are eager to believe that the share market bull is back, fit and well. There is no doubt that the bear market has to end sometime but I am certain that now is not that time. It will take a while before the massaged and tardy official numbers confirm it, but most wage earners who are not employed by government are increasingly worried about keeping their jobs and paying their bills. Prudent people are certainly not interested in borrowing any money – even at near-zero rates – for flat screen TVs and overpriced cars. And it seems that the banks have at last learned that it is unwise to lend to imprudent people!

Governor Mboweni is off to London to attend a G20 meeting and his speech in Cape Town today was delivered by a flunky. It reportedly warned that “portfolio flows are fickle”. Presumably he suspects that foreigners invest in our markets in order only to make a profit. Just as soon as losses threaten they flee for the exits and callously take their money with them instead of steadfastly leaving their cash down here on the southern tip to turn into manure and trickle down among the grass roots. If he thinks that the ebb and flow of foreign money has something to do with his and his cronies stewardship of the economy he is right but he should not take it personally. Switzerland surprised a few folk this week and dropped interest rates. Money promptly left the shadow of the Alps (some may even have popped up here) and the Swiss franc swooned. It is down more than 4% against the euro. This must be a great worry for anyone with a secret horde in a numbered account. Lichtenstein also announced that in future they will be more hospitable to foreign tax collectors who call round for a chat. Times are getting tough for anyone who believes their money needs privacy.

Privacy is certainly already lacking for Mr Madoff, who the authorities speedily put behind bars for stealing $65billion. In the rush however, there was no opportunity for the judges to ask him where he stashed the cash he nicked. Is there any truth behind the rumour that Bernie’s people have been seen talking to Shabir’s people about how to arrange a suitably impressive sick note? Just a couple of years in the prison hospital and Bernie will be off to join his loot.

The news that SA is responsible for 40% of the carbon dioxide emissions in Africa is not surprising. Recall that the gas is exhaled unceasingly by every one of us. But the country groans under the weight of an excessive number of politicians who never stop talking in order actually to do something. And now it is election season. May I suggest to those attending the conference on Carbon Capture in Joburg this week that it is not this non-poisonous gas that needs to be controlled.

The only cricket to concern us this weekend is the equally embarrassing squabble that has broken out between the selectors and the managers.

James Greener

13^th March 2009.