STOKING THE FIRES OF BUREAUCRACY

It really is very odd. Every day the anti-capitalist debate ratchets up another notch and the masses demand that the state should do more and yet every day demand for the rand also increases. Do foreigners really want to own South African assets in the belief that the state will buy them out at better prices quite soon? A further error in this model is that even if this were vaguely possible, the scrum at the currency exit doors thereafter would presumably soon erode any putative profits. And while the data suggests that exports are growing faster than imports, is the currency effect of this really overwhelming the ingrained habit of South Africans to get money offshore at every opportunity? Like everyone else I just shrug and mutter about the “carry trade”. But even that needs more players or money to be joining the game all the time in order to explain the strengthening rand.

Oh and the gold price keeps going up.

Some alarmingly influential voices are starting to agree with the crazies that nationalization is perhaps not such a dirty word after all. What is going on? Are they putting something in the water? Name just one area – other than tax collection – where the state shows the least aptitude or ability or even interest in running an effective and efficient organization. And even tax collection is tending to degenerate into shrill threats akin to extracting money with menaces. I wonder when someone at SARS will spot the terrifying idea being floated in Britain that salaries and pensions ought all be paid directly to the Receiver of Revenue who will subtract what he feels is due before sending the balance on to the mugs. Really, governments world-wide are getting far too large and self-important. Remember, THEY work for US.

This sad decline has been quantified by the announcement that South Africa has in the last 10 years fallen 40 places to 82^nd in the world economic freedom rankings. The ranking process scores dozens of different areas and sectors before aggregating them to obtain the overall position. In the areas where the government has so far not managed to interfere too much our rankings are rather good and the JSE’s settlement systems even scored first place. But in places where the state either needs to or has chosen to operate, like the regulation of business, security of property rights, health and education this nation is vying with some very dodgy and failed regimes for the bottom of the league tables.

Current contributions in the race to the bottom are being made not far from here, where catering with talking opportunities has been arranged for the party elite and crowds of hangers on in a large conference centre. The city council has closed the streets around the venue to traffic. Blue-light convoys wail along the freeways at all hours. The perceived threat to delegate comfort is clearly more important than ratepayer convenience. Ever since the world cup, the traffic cops are eager to try their skills at traffic disruption at any opportunity. Pigspotter, the splendidly named addition to cyberspace, now has associates in the kingdom.  Few will believe that the authority’s anger at people using technology to alert each other to speed traps and road blocks has anything to do with road safety. More likely it is a reaction to the threat of disrupting both formal and informal revenue collection.

I was delighted with the news that Sasol is now producing a fuel from coal feedstock that is good enough for aircraft to use. I remember a vintage cartoon, lampooning the new fangled aviation industry, depicting a sweating engineer frantically shovelling coal into a boiler in order to raise enough steam to keep a string and paper plane-like contraption aloft. And now it happens. I wonder what fuel the military jets and helicopters showing off over the conference venue are using? Come to think of it what are they doing there anyway? It’s just a party talk-shop.

New events at the Commonwealth games include concrete mixing and pouring, stadium seat installing and pin the blame on the donkey.

James Greener

23^rd September 2010.

TAXING THE FAMILY JEWELS

Feature of the week is the dollar gold price which just keeps on trucking upwards. The business channel screens are full of well brought up economists insisting that the decade-long rise is short lived and that gold bulls will regret swapping fiat paper money for lumps of cold yellow metal. They are eager to point out that amongst its many shortcomings, gold pays no interest and can be used to avoid tax. Locally our enjoyment in this excitement is muted but hopefully only delayed by an obstinately strong rand. This strength was not helped by the Japanese authorities, exasperated by their own strong currency, giving it a few swipes with a samurai sword and making it leak a bit. Buyers outnumber sellers in almost all the world’s share markets and our own All Share is sniffing at the heels of 29 000 again.

COSATU’s suggestion that the country needs a state bank (that)… “will ensure that interest rates are low enough to finance productive economic activity" raises a few questions. Does the author of these words understand that banks normally only lend money at rates higher than they can borrow it for?  Like most old reactionary cynics I shall not be reading “A Growth Path towards Full Employment”. The document is reportedly keenly supportive of the view that government employees alone have the skills and training to control the allocation of a nation’s resources. For me there already is far too much evidence that anything the state tries to run is bound to fail. Simply the issue is that people look after their own assets best and when entrusted to administer assets which have no immediately obvious and watchful owner, rarely resist the temptation to steal them. Corruption is the usual term.

This week’s saddest example of the state’s failure is the demand by pupils who lost out during the teachers strike for a guaranteed year end examination pass. Pupils themselves are now reportedly on strike and armed police have been deployed against the threat. . No one in authority has the courage to point out that an exam pass is totally distinct from acquiring the skills and knowledge that these so-called “learners” will desperately need to compete with the other entrants to the labour market all over the world. Many of them I suppose still believe that the state will provide a living even if they can not read or write. After all, who has ever seen pictures of our president deep in concentration poring over a policy document while making annotations in the margin?

 Another community that the government is unwilling to confront with the truth is mini-bus taxi drivers. AARTO is the rather ugly name for yet another scheme to cajole drivers into obeying the traffic laws. It final but risible sanction is the withdrawal of a driving licence – a document that many never legally obtain anyway. AARTO’s implementation has now been postponed because of “public panic”. This panic was actually an unruly traffic-disrupting gathering in Pretoria that had the familiar effect of demonstrating which side is the more heavily armed.  

Those of you not living here in the kingdom may have missed the story about the unfortunate woman who was robbed of more than R200 000 worth of jewellery. This dreadful crime took place in a shopping centre as the lady was returning to her car after having had the jewels weighed. The purpose of this odd practice was, she explained, in order to “pay taxes on it”.  It is indeed tax return season, and most of us are currently wrestling with the dreaded forms, but I must admit to having missed the levy based on the weight of one’s trinkets. Mind you, the lady concerned is a close relative of the man who used to be the president’s financial advisor so maybe she is privy to some forthcoming announcement. As far as I know the tax man’s recent communication to several thousand of his customers did no more than leak his email address book to the astonished and in some cases delighted recipients looking to expand their own client base.

My Shark supporting friends are getting anxious about the resurgent and mighty Transvaal.

James Greener

19^th September 2010.

BULLS EVERYWHERE

In common with investors worldwide, those on the JSE became overexcited at yesterday’s news that only 451 000 Americans were claiming unemployment relief and indulged in a buying spree. Shortly afterwards the Bloomberg’s news service announced that the SA  repo rate had been cut 50 basis points from 6.5% to 6.0%. 20 minutes later Governor Marcus confirmed this in her TV broadcast and even more frantic buying ensued. But before the market closed, the sad fact that all of this actually has scant immediate impact on the valuation of companies wiped out much of the exuberance and prices slumped. Day trading is for the brave and nimble only.

Some research suggests that changes in the price of money can take months before any measurable effect can be detected in the various measures of economic activity. Presumably now that cash is cheaper than it has been for decades, borrowers must be pleased, but whether they will now borrow and spend more than they had already planned is unknown. I suspect that matters such as threatening political instability, excessive and unpredictable regulation and bureaucratic interference provide somewhat more important considerations for financial  decisions than interest rates.

That would seem certainly to be the case with the currency, where notwithstanding the rate cut and ever more strident shrieking about nationalisation and land ownership, demand for the rand is maintained. In addition to the widely believed story that foreigners just love buying our still quite high yielding bonds. Notwithstanding the demand for super luxury watches and whisky from President Zuma’s fortunate and capable friends and relations, other data also indicate that the value of exports is recovering faster than the value of imports Whatever the reasons, it does look as if quite soon just seven rands will buy you one US dollar. Mind you that also says something about the dollar getting cheaper.

Reporting and dividend season is now upon us and good news results outnumber the bad. The people running the real economy are doing a good job for themselves and their shareholders. This doubtless is one reason for the trade unions demanding that the government “tax the super rich”.  Assuming – incorrectly – that each of the 400 or so listed companies is able to pay say 10 directors and executives R10m a year each, that R40bn, even if taxed at 100% (!)  would cover just 19 days of government expenditure.

If your travels ever land you at our new King Shaka airport down here in the kingdom, take a minute to find and view the smallest of the delightful family of bronze bovines that stand outside the terminal building,. The recumbent calf is easily overlooked but is very appealing. The bull, however, is rapidly acquiring a shiny nose as visitors adopt the custom of rubbing it as they pass. The figure of the herd’s minder, King Shaka himself is absent. It has been removed following complaints that it failed to radiate sufficient power and gravitas. An official committee has been convened to instruct the sculptor

The folk who run cricket will be delighted that they have at last managed to rid themselves of any support from old duffers like myself. After studying a full page colour advertisement for a so-called Champions League Twenty 20 tournament that is about to start here on the southern tip, I am no wiser about how many South African teams or players might be participating. The organiser’s transformation of the game from employing boring yet identifiable regional and national teams into natty contemporary franchises is complete. Who on earth are the Wyamba?

And come to think of it, who are the Pumas?  The hint is that the Sharks are going to Witbank tonight so I guess someone in the Eastern Transvaal thought an American cat was an appropriate name for their rugby team.

James Greener

10^th September 2010.

DANCING QUEENS – IN WAITING

Sadly the strikes appear to be continuing. The union leaders expressed little interest in the government’s complaint that taxes and borrowing will both need to increase if their demands are to be met. There is obviously a huge problem with the state’s pay scales and staffing policies. The national department of arts and culture – surely together with sport, an area that has no need for government presence – this week advertised five Chief Director posts all offering salaries over R60 000 per month. The successful appointees will direct, in chiefly fashion, departments dedicated to “Investing in Culture” and “Arts and Culture in Social Cohesion”. That these jobs even exist let alone will soon be filled by dark-suited laptop-bag toting airport concourse denizens on their way to meetings and lunch is offensive. The department is also seeking to fill the obviously very lowly but hopefully vital post of Assistant Director: Budget Planning and Expenditure Control with someone skilled, qualified and experienced and who will be content with R16 000 a month. I expect the previous incumbent has joined the skilled, qualified and experienced nurses and teachers on the streets.

However, the KZN department of arts and culture has been busy doing some real work. They have been counting maidens and announced today that at least 26 000 are available to take part in the annual Reed Dance. The Dance is a sort of shop window for the king and his buddies to conduct a stock take of potential marriage partners. President Zuma usually attends. The rest of the world is either amused or aghast. It seems an incredibly large number.

Do politicians never share a meal or sit down with their family and discuss the triumphs and tragedies of the day? Do they really have no interest in what their flesh and blood is up to? Durban’s Mayor Mlaba claimed he had no idea that his daughter’s company was working for the city. You would have thought that a R3m contract might just have been exciting enough to mention to Dad between the soup and the main course. Apparently officials are usually “so busy formulating policy” that they forget to check if any family members are breaking the rules. Believing this makes you as naïve as the bookies who quoted odds against Pakistan bowling no balls to order.

In the meantime Governor Marcus has explained that interest rate decisions are “complex”. This presumably is code for “don’t expect us to cut rates next week”. Actually the decision is difficult not complex. It is merely up, down or nothing. Up will cause so much uproar that the sky will fall down. Leaving rates unchanged will attract scorn and accusations of timidity. So they may as well cut 50 bp. The only sufferers in the short term are a handful of elderly savers who won’t say much, and it is unlikely that anything the Reserve Bank can do at this stage will revive the near moribund lending market.

The All Share index is now exactly where it began the year having excited both bulls and bears in turn. The performance has however, been unevenly distributed with the modest uptrends in financials and industrials offset by a fading resources sector. Now mining was supposed to be the sector that was going to make us rich in 2010 as we pinned our hopes on China’s seemingly insatiable demand for raw materials to build stuff with.

Pretty much anytime the ‘bokke players or coach spot a microphone, they feel compelled to say things that later almost everyone would rather they had not. Apparently coming second in the tri-nations is now regarded as both inevitable and a good thing. Oh dear me no.

James Greener

3^rd September 2010

MAID IN CHINA

The writing is on the wall for the thousands of us who have tried to make a living from convincing other people that we know what is happening in the world’s markets. The truth is they are incomprehensible to everyone. Who, for example can explain why anyone would lend money to the massively indebted and probably bankrupt US government for 10 years at a mere 2.5% interest per year? Closer to home there is the puzzle about why a bunch of folk in Geneva would agree to a deal which the counterparty – a rather dodgy mining house – have described as being “very difficult to explain to the public”. It also doesn’t help when the house cheerful admits that they will be using the initial $2m of the deal to “clean our dirty laundry”. And in a different sector yet another giant international bank has been lured into believing that the South African business of lending money to poor people is profitable, and has offered to relieve Old Mutual of their shares in Nedbank. The share prices of both companies rose satisfactorily.

So where can we put our money in the hope and expectation that it will enjoy capital growth and provide income for life’s little necessities like beer and fishing rods? This week the inflation statistics were published and it does rather look as if that particular enemy of savings is dormant at present. This suggests that both growth and income expectations should probably be adjusted downwards to this “new normal”. This has in fact taken place and for almost a year the All Share has meandered along in a relatively narrow channel occasionally teasing us with the promise of a healthy bull, and yet always letting the bear out when things got too heated. The inflation numbers also did nothing to help the cause of the strikers whose leaders continue to sacrifice their member’s jobs and incomes in return for political recognition and seats at the high table. The cruel fact – dreadful examples of profligacy and lavish executive excess aside – is that labour is in oversupply and therefore its aggregate cost can not rise. Some of us believe that the oversupply is almost entirely an effect of government meddling in the market. But that is another whole debate.

Also in serious oversupply are our president’s consorts. Emerging from the luxurious sharp end of the SAA plane that took him to China, the pres was followed by a lady described as his fiancée. Undoubtedly the welcoming committee had been briefed beforehand with an already lengthy list of names, pictures and details of the several women who are already the clients of the South African President’s Spousal Support Office. The arrival of another candidate must have caused a flap even amongst the inscrutable hosts waiting on the tarmac. Presumably after the pleasantries were over they managed to ship President Zuma and his entourage safely into the city without encountering the amazing 100km long traffic jam that is reported to have gridlocked Beijing for days.

I was less fortunate. An unknown but presumably serious incident resulted in the need to close completely the south bound carriage way of the very busy N2. Traffic was directed down a small and little-used off ramp and a massive tail-back ensued. Immediately, the emergency lane was adopted by drivers who believed their journey was more important than everyone else’s. This forced the minibus taxis on to the grassy shoulder where progress was somewhat but not totally impeded by the concrete culvert. Adding to the delay was a toll booth of only two lanes that guarded the off-ramp. Every vehicle was obliged to stop and pay the appropriate but unusually tiny toll. Not one of the myriad of uniformed officials witnessing this stupidity had the wit or authority to notice that the economic cost of a 5 km traffic back up on a major arterial was far greater than the loss of revenue that opening the tollgate would cause.

I will be watching this week’s Test against the Wallabies as it happens but only because good friends have promised support and strong drink. These are dark and terrible times for SA rugby.

James Greener

27^th August 2010

THE BEAR STRIKES

So far this month the all share index has given back almost two thirds of last month’s amazing gains. Volume, however, is rather muted.  Bonds on the other hand are in great demand as investors scramble to lend money to the government. The long bond price index has traced out one of its steepest rises in recent history, gaining 4.5% in a week. I certainly never expected this but it makes me very worried about buying now. The so-called GOVI exchange traded fund is the easiest way for the small investor to get this exposure and you may have noted that it has appeared in the new highs column almost every day recently.

Even after the election of a worker-friendly government sixteen years ago, this country has continued with its policy of paying most of its civil servants rather poorly. Of course the new government has enthusiastically continued the program of rewarding loyal cadres with an appointment to an ever growing upper echelon of bureaucrats who are definitely paid far more than they are worth, which in many cases is zero. However, perhaps because politicians are jealous of their skills, professionals appear to be particularly ill treated by the state. The present unresolved wage negotiations have triggered strike action. A quiet and dignified silent picket line is neither the South African way nor all that effective at attracting reporters and cameramen. Singing and dancing is more our style. Unfortunately a few of the teachers – and probably a number of rent-a-crowd – have been mobilised by union leaders and are travelling the city in busses from school to school. Their objective at each venue is to terrify the school into closing and it has been successful. Several of my family are in the teaching business and the stress of dealing with rumours and stories of where the mobs will next appear has been just as bad as the actual confrontation and police presence in helicopters and vans. The sole light-hearted point is that some of the chanting throng are armed with golf-clubs rather than pick handles. Presumably they have a tee off time booked for later in the day.

The tragedy of the SA mining industry gets ever more dreadful. This week saw the government admitting that even it could not understand the tangle of laws and regulations that it has imposed and it has (illegally even!) suspended the whole shebang until it can sort it out. No exploration or mining permit applications will be processed until the clowns at the department of mines grasp that exploring for minerals on a property where a mine has been operating for decades does not make any sense.

In the meantime it is reported that the government is “devising a labour-absorbing economic growth strategy” that will provide growth of about 7% per year. Oh dear. The sole thing a government can grow is its level of interference and regulation neither of which promote or encourage individuals to try and start a business of providing a product or service that they can sell to others. Just look at what the forthcoming carbon tax will do to the car industry and will not do for carbon dioxide.

Tomorrow, when events unfold in Soweto and John Smit collects his 100^th cap I shall be on holiday. I really can’t face the ordeal of watching the ‘bokke these days. It is just too stressful. I shall either be fishing or if too windy, as seems likely, I shall fly my kite. I can only hope that the Ellis Park curse on the All Blacks extends to the FNB stadium. Only late tomorrow will I call somebody and ask them for the score. Here in the kingdom the logistics of getting from the test match on TV at home to Kings Park for the Province clash in just 10 minutes is causing much anxiety.

James Greener

20^th August 2010

WHO’S STEALING THE STEEL?

All over the world governments and similar meddlesome and larcenous organisations have for decades felt that their nation’s iron and steel businesses are too strategic to be left to the whim of market forces. Locally the appalling policy of political resource allocation, together with an incomprehensible loyalty points system of Bs and Es are extra factors facing the industry. This week ArcelorMittal published a self-congratulatory announcement from which it appears they are going for double platinum status in that loyalty program. The deal itself is worth R9bn and the list of beneficiaries include impeccably well-connected names, some of whom may well prove useful in the small matter of a difficulty that the company has over some mineral rights.

One rather timid “proper” analyst has suggested that this deal might perhaps dilute existing shareholder earnings a tad! This improper analyst assures you that it already has. Who do you think has paid for the expensive advisors and sponsors who, after a full year on the job, have come up with a deal that still refers to vague entities such as “a women-led consortium”? This suggests that the scrap for the spoils will go on for some time yet. Interestingly, the document also asks the government to guarantee that all the loyalty points that Mittal should earn with this deal will not be cancelled if, at some stage in the future, the prize-winners sell their shares and run.

With even the Standard Bank worrying that “pressure on public finance will escalate” those folk who enhance their lifestyles by nibbling on the public purse will have to take larger bites as the purse begins to shrink. This development has been noted by the numerous civil service employees who have been striking and marching and dancing in pursuit of better salaries. Their posters and spokesmen have pointed out the very large gap between even the official incomes of ministers and workers, although their complaint that a policeman’s wage packet weighs less than his service pistol is a bit puzzling.

Again the element carbon is grabbing the headlines. This story concerns a grubby bag of dirty-looking stones of dubious origin that was passed around at a dinner party. The party was held in South Africa in 1997 and was attended by grubby celebrities of equally dubious origin who are now squabbling in a Dutch court about whose motives and intentions was the purest when it came to dealing with these stones. Facts are in short supply.

Given the possible failure of global wheat harvests in the coming months perhaps there is an opportunity for those municipalities wondering what to do with that large area of well-irrigated flat space inside their new but little used world cup stadium. The local soccer sides have declared that most of the stadiums are too large for their purposes and they will be returning to their old familiar playing fields. A similar disappointing comment was made by City Lodge Hotels in their report this week. They are unhappy with the way FIFA’s buddies reneged on their promise to send hordes of fans to stay with them. Gradually the evidence is accumulating that playing host to the World Cup has not delivered untold riches to everyone.

Sentimentally, of course my supporter’s heart lies with the teams of Eastern Province whose Colours for shooting I hold with pride, but whose sporting representatives are today alas invisible. Therefore my more than 30 years of living and paying taxes in the Transvaal seem a worthy reason to support the teams of that province. But they do make it hard. For a moment there I thought they had the Sharks by the tail fin. Maybe in a year or so I shall be forced to make another change.

James Greener

13^th August 2010