MORE BAD NEWS FOR SAVERS

Governor Marcus and her team of whiz kids have come to the conclusion that 5.5% is the correct price for money. Two years ago her predecessor and his bunch selected 12% as the ideal price You sort of wonder why it has taken them two years to get here because there is no evidence that the step by step progress from there to here has had any impact on the old enemy of inflation, which in fact has led rates down by quite a distance. Neither growth, employment or the currency has behaved according to plan so what is the point? Faithful readers will know that I am deeply suspicious of committee decisions and this repo rate is a good example of how they usually don’t work. You have to be almost as old as I am to remember a brief period when the nation flirted with letting market forces set the repo rate. It was exciting and volatile in the beginning as everyone learned how to game the system. Fortunes were made and lost but in the end I think it was settling down nicely. The Reserve Bank, however, suspected that the quiescence reflected collusion between the major players. So instead of trying to cure that, they quickly returned to the system of letting a committee set the price of what is used to price everything else. Unsatisfactory.

From what I can make out, the Irish nation is being urged to borrow money they don’t really need right now so that other countries that really have to borrow now will be able to do so cheaply. What’s happening here apparently is that bureaucrats are trying to influence the price of a type of money that undoubtedly is determined by market forces. That is the money that investors lend to national governments for lengthy periods like 5 to 10 years – usually called the bond market. This is just one of the shenanigans taking place in the global financial scene each of which may be having its own influence on what happens here.

The G-20 meeting ended with a communiqué that was as meaningless as the delegates hoped to get away with. The worthies of the G-20 invited those countries who felt their currencies were over valued to respond with “macroprudential” measures. In the predictable brouhaha that broke out among the talking heads of the rent-a-response industry and the media scrum about what on earth this might mean, the suits slipped away. I am sure that word in not in any real dictionary. Perfect.

A local shenanigan receiving too little attention is the news that in August the managing director of the company that prints the bank notes for us and other nearby countries was found to be rather remiss about keeping records and counting the stock. He was suspended but not charged. That must have been fun while it lasted.

Ms Middleton and Prince William were responsible for several terabytes of digital picture stock this week when they announced their engagement. Presumably her expectations of her future husband’s income once he is crowned king are well above the level recently announced by President Zuma for our local royalty. On not even R71 000 a month, kings lag both premiers (R135 000) and even executive mayors (R75 000) in the income tables. You wouldn’t cover even the Palace’s Corgi food bill with that. Perhaps we have a lot of kings?

You can be sure that there will be hordes of executive mayors, premiers and perhaps even kings turning up in Durban in 12 months time when unhappily we host an international climate change conference. Once again throngs of carbon-based life forms with zero knowledge about science will gather to demand in voices filled with carbon dioxide that the rather vital 6^th member of the periodic table be banned from the globe. It will be a mess and another bill for ratepayers.

So what exactly is it that the ‘bokke have been eating with their cornflakes? If it is all that potent it barely worked against the Welsh.

James Greener

18^th November 2010

FEATHERING OUR NESTS

While most of us have been fretting about strong rands, quantitative easing and other diversionary events, the bull has supplied the All Share index with a very impressive 20% boost since Spring Day. It has been the resurgent resources which have contributed most of the oomph. Financials as a sector are battling, and in my view will probably continue to do so until demand for their product – money – picks up. Even in rand terms the rise in the international commodity price indices has been very useful and one wonders what would happen if the currency one day did do a swallow dive and bolster local earnings even further.

Most of the great and not so good talking heads are gathered in South Korea for a knees-up where currency strength is definitely a huge agenda item coming closely below the lunch menu and the pecking order for the group photo. The delegates and their prejudices, policies and proposals are generally unchanged and indistinguishable from those present at every previous meeting. If they really do have an influence on the way things work then the current mess is therefore their fault and there is really no sense in letting them try to fix it again. More probably the economic situation is and always will be the result of about 6 billion people looking out for number one. The best thing the heads can do is go home, slash government spending and interference, which distorts the proper allocation of resources, and then retire to write their memoirs about how they for once did something really useful for the planet.

Government was warned that their RICA policy of getting every cell phone owner to register would be tricky. And so of course it has been. The mania for governments to compile databases of its citizens has reached a particularly high pitch here in SA. “Combating Crime” is almost always the offered reason for the exercise and sadly that is definitely not working. In fact most of us suspect that criminals themselves have easy access to these schedules of who owns what and where they live, thus providing not only targets but identities to be purloined for their own fraudulent registrations.

The state itself seems uncertain about the value and whereabouts of what it owns. Within minutes of promising to sell R20bn of its assets in order to lend the cash to Eskom, it announced that it wouldn’t be doing that anymore. The reason for this about turn has not been revealed but my guess is that the asset register was a disappointment.

Our new minister of sport says that he is worried that boxing appears to be run out of a car boot and that other sports are in similar administrative disarray.  Without exploring how any minister can even identify poor administration, politicians ought not to be involved in what we boys and girls do for recreation, fun and exercise. Unless we are really lucky or talented, the costs are usually borne from our own pockets and so a car boot is undoubtedly cheap office space. Some sports, however, are so popular that commercial sponsors, eager to be associated with potential winners and to get the attention of their fans and spectators have found it beneficial to wave their chequebooks. But Minister Mbalula is now determined to use taxpayers money to “ruffle a lot of feathers” This is not a minority sport involving birds. It is a program that will demonstrate that when policy  replaces talent, skill and effort the outcome is  anger, disappointment and disillusion for just about everyone in the nation who yearns to wave the flag and celebrate a victory.

The ‘bokke substitution policy in action in Ireland last week looked suspiciously like an early case of feather ruffling. It must be very unsettling for the captain to see valuable and on-form players whisked off the field for no better apparent reason that there is someone on the bench who deserves a cap.  Wales is going to be a very tough one. Go ‘bokke. And go Alonso.

James Greener

12^th November 2010

UNBLOCKING THE RAND

The largest ever container ship to visit our ports glided past my window a few minutes ago and into Durban harbour. From what I could see it was pretty much empty and the news is that she will sail on Monday after loading 7000 containers destined for foreign parts. Well that’s a nice sign. Exports greater than imports, but that does mean more upward pressure on the rand which seems to worry lots of people.

Federal Reserve Governor Bernanke in Washington also caused a great deal of worry in some parts of the world by confirming that he has ordered the printing presses to roll off $600bn worth of crisp new paper money. This, he will lend to the US government who have decided that they will do the spending that their citizens have very annoyingly declined to do ever since they lost their jobs and the value of their homes collapsed. Although, as some commentators have pointed out, $600bn these days is not really such a large sum of money, (really?!) it has to go somewhere and maybe a good chunk of it will flow into the stock market. Therefore we have seen some hefty buying on Wall Street as speculators fill up with shares so as to have something to sell at much higher prices when the fresh money arrives. And then of course with more US dollars in the world that means that fewer units of everyone else’s money are needed to buy a dollar which is another way of saying their currencies strengthen. So here we go around again!

Soon after entering the stock broking world I received an unforgettable lecture from my mentor and boss all about the various rands that existed. In particular it was important to know about the financial rand – now sadly deceased, it was great source of broker’s revenue – and the blocked rand, which Minister Gordhan seems to have just killed off as well. As the years passed fewer people in the industry knew about the blocked rand and what you were not supposed to do with it. Being a great believer in human ingenuity and self-interest I was never convinced that the total sum of blocked rands languishing here in SA was as large and threatening as some calculations suggested. I was sure that leakage was rife and that most emigrants had long since found ways to get their money to join them in Perth or Toronto. Our quaint triple currency is now just a topic for some eager researcher to turn into a thesis.

I am appalled by the news that the JSE has effectively created a mini-board where investors of only a certain racial classification will trade shares that are similarly classified. Even if the listed companies feel compelled to go along with government’s terrible and wealth-destroying program of resource allocation by race, the bourse ought to be at the forefront of insisting that shareholders are equal.

The huge penalty slapped on Pioneer Foods for allegedly colluding to set the price of bread is very alarming. They must have really annoyed someone’s relative. For starters, doesn’t it take at least two to collude so why not treat all parties equally? Next, the fine extends far beyond a simple cash payment to the state. The company must pay a sum into an “Agro-processing Competitiveness Fund” which will quickly be plundered if only because no one has any idea what that means. The authorities have also told the company how to run its business in the next few years so that the punishment will be long lasting. They are delighted to show off with terms and concepts like “capital expenditure” and “margins” – clearly in the belief that the bread and milling markets can be controlled by edict. The company’s eagerness to settle and get the matter behind them is understandable and the share price seems certain that the company intends quickly to move on.

The Sharks may have won their last Currie Cup at Kings Park. Now the boss of SA rugby has turned engineer and declared the stadium to be deteriorating. This is merely code for “the owners of the unused soccer stadium next door have a problem.”

James Greener

Guy Fawkes Day 2010

FIFTH WEDDING AND A FINAL

Almost all of this month’s rather modest 3% total return from the All Share index occurred in the first few weeks. Thereafter the market has put on a virtuoso performance of matching ups with downs, mixed with copious indecision. The banking sector has found the going particularly tough. But mining houses and rand sensitive resource exporters appear to be benefiting from all the waffle about currency wars. The steadily rising prices of commodities suggest that someone somewhere is always keen to buy something either to eat or to make into something else. One particularly interesting segment of this market are the so-called rare-earths of which China seems to have an inordinate share and which recently they have declined to sell to anyone. Many of today’s essential electronic gadgets need tiny but critical amounts of these elements. Watch this space.

Minister Gordhan stepped up to the podium in Parliament with the exciting news that he will be collecting R30bn more in tax from us this year than he originally anticipated. But all he can think to do with this windfall is to buy some foreign currency. Not a great idea in my opinion. First prize would definitely be to give it back to us tax payers, so we can individually decide what to do with it. I, for one, would not buy any greenbacks. There are just far too many of them. However, I am not convinced that there really is a problem of excessive revenue. There was way too much dependence on expressing everything in terms of GDP which in turn depends on assumptions of how much it might grow. If there are indeed any extra rands in the National Treasury they will be quickly mopped up by those enthusiastic and spendthrift ministers who just recently have signed declarations that they will do their jobs and deliver services from now on. The president’s office has already claimed a 10% increase on their original allocation in order to meet “unforeseeable and unavoidable expenditure”. Is that a warning that we have another wedding to pay for soon?

Consumer price inflation is exactly that. Each consumer has a different experience depending on his or her pattern of consumption. The just released and much celebrated multi-year low of 3.2% for September was definitely not my experience. My electricity bill claims a considerably greater proportion of my total monthly expenditure than the 1.9% that the Stats SA model uses. And this item is up 18.3% year on year. Add to this the 7% increase in beer prices which also impacted me more than the model’s 1.6% weighting of expenditure. Those readers paying school fees will be amazed to learn that Stats SA feels that they comprise just 1.3% of one’s outgoings. These fees are up 10.2% year-on-year, the second highest after electricity. These figures go a long way to explaining why spending on other consumer items is under pressure. Apparently bread and cereals are down 1% in price since last year and telecommunications equipment is 30% cheaper. For all its importance in economic debate the inflation rate is a dreadfully suspect number.

The world is very relieved that Warner Brothers and New Zealand have agreed that those cold and soggy islands will be used as the location for another Hobbit movie. Taxpayers there are even paying $10m towards the film company’s marketing costs. The director also has his eye on the All Black training camp when it comes to casting for those fearsome huge and ugly creatures who lurk in the background just offside.

Flag sellers, whose business took a dive in July, are back in droves at the kingdom’s traffic lights, offering any item you can imagine plastered with the Shark logo. The intrepid few who have travelled from Province for the final will struggle to find much in blue and white hoops.  Despite my great grandfather having married a Cape Town girl in 1881 I shall be supporting the black and white tomorrow.

James Greener

29^th October 2010

THE COMPUTER SAYS WHOA

So there is the All Share index above 30 000, offering a slender 2.28% dividend yield  - assuming everyone maintains last year’s dividends of course - and a rather off-putting 17.2 price earnings ratio. This index is now fewer than 3000 points below the all time high and if and when we breach that level there excitement will be high with few bothering to point out that it has taken about two and a half years to get back here. I can’t see a good case for any but the most timid of buying programs at this stage.

Further revelations about the foetid mess that is the US mortgage-backed securities business have come to light. Substantial fraud and gross negligence aside, the key issue in this debacle is that a very large number of people who borrowed money to buy a home in recent years are now faced with the unsettling fact that the current resale value of their house is very much lower than the outstanding mortgage debt. Under these circumstances and with a government inclined to be sympathetic to their plight, the urge to stop paying is strong. This really messes up the cash flows down the food chain and now some of the folk in that chain don’t want to play anymore. These threatened sell-outs are only helping reveal the extent of the administrative mess which has failed to keep track of who owes what to whom.

The bureaucrat who came up with the idea of “Multi-disciplinary Roadblocks” will be in line for a big fat bonus. The plan is that a motorist pulled to the side of the road is in a near defenceless position that provides a wonderful opportunity for the agents of the state to probe their victim on any number of topics other than mere driving and vehicle fitness. Modern communications technology will be used to beam down to the roadside officer your most intimate details. Just imagine the amount of the bribe needed to dissuade him from checking on your tax status, your citizenship, your indebtedness, or your wife’s photo against your passenger. They will probably also be able to embarrass you further by revealing how long it was since your last dental check up.

The news channels are trying to get excited about the rumour that President Zuma is in the midst of a cabinet reshuffle.  There certainly are a number of ministers who should be removed from power as soon and as far as possible but it is unlikely that Mr Nice Guy will do much to bruise egos or offend friends. My own view is that it far more likely that the  Christmas liquor special catalogues have caught the president’s eye and he is rearranging the booze cabinet to make space for that Macallan single malt at a mere R150 000 a bottle. With only three available he had better move quickly if he going to be a good host at the party after next week’s medium term budget which may or may not make changes to exchange controls.

There is lots of talk about something called a “currency war” in which the next battle will take place during this weekend’s G20 meeting in South Korea. It is not easy to understand what this means but it entails people claiming loudly that theirs ought to be weaker than yours. Adding to the confusion is the fact that within each country there is also a difference of opinion about whether their currency unit is actually over or undervalued and even worse whether or not that is a good or a bad thing. The Economist has their wonderful Big Mac index that tries to help mere mortals make some sense of it all. On that basis it turns out that our dear rand is undervalued. A burger in SA costs almost $1.00 less than in the USA. In China, it is $1.53 cheaper. This really annoys American politicians and prompts them to lecture China about how to run their economy. Lectures that the Chinese wisely ignore. In fact this week they nudged their interest rates up a notch.

With a week to go before the Currie Cup final there has been space in the press for the apparently shocking news that some FIFA officials can be bribed and someone called Wayne no longer wants to play for Manchester United. Troubling stuff indeed.

James Greener

22^nd October 2010

RAND RAMPANT

Investors world-wide appear to have no doubts. The rand is the must-have currency. At present a single US dollar will buy 680 SA cents. Whatever those investors are choosing to do with the rands – buying shares appears to be one idea – they must be assuming that when the time comes to take their money home, the price of a dollar will be not very different from these levels. However, it tends to be in the nature of markets that this assumption is usually false if only because most people will leave the moment they see weakness developing and then a bit of a scrum forms at the exit. This only speeds up the collapse. Locals who have not yet used up their foreign currency allowances might think about taking advantage of this period of rand strength.

Much of the current optimism in the markets has been caused by the near certainty that the US Federal Reserve will soon launch what is being called QE2. This is not an ocean liner but the second tranche of a so-called quantitative easing program. The innocuous name refers to the process where the Fed prints money with which it buys equally freshly minted bonds issued by the US government. The government then doles the cash out to its citizens in the form of salaries, payment for goods and services and on welfare programs. QE1 failed to launch the US economy into a noticeable recovery so they are going to try again. QE2 is a trillion dollar bet that this time the consumers will be more obedient and spend rather than pay off debt or save. The Chinese with $2.65 trillion in foreign currency reserves must be watching this program of dollar sacrifice with growing alarm.

One of the austerity measures being taken by the UK government has been to shut down dozens of tax eating organisations that provide little value. This is a great idea. Sadly the same cuts are not yet evident here despite being woefully overdue. The National Youth Development Agency has an annual budget of R370m. It pays R11m a year in salaries to a 12 member Operating Executive Committee who rely on input from a 63 member Advisory Board. Just the tea and biscuit bill for a meeting this large will leave precious little money out of the budget for any other youth development – whatever that is. Over at the misnamed Road Accident Fund, which is actually a R43bn deficit not a fund, the CEO was awarded a bonus amounting to almost half his already outrageous salary of R4.3m. Reports failed to indicate the reason for the award but clearly it can’t have been performance. The Competition Commission has delivered an opinion on the staffing complement for the proposed forthcoming merger of two life assurance companies. This change of focus from consumer protection to employment policies is alarming and typical of unchecked bureaucracies. And Stats SA sent a charming young lady armed with a blunt pencil and well used eraser to my house to ask questions and complete a huge census form. She treated my refusal to identify my race group on the grounds that we had stopped all that nonsense 16 years ago with polite amusement and then went on to record that I wear glasses and own a variety of consumer durable items that will undoubtedly catch the attention of any potential burglar who sees the document as it travels through the system. She forgot to ask about the Rottweiler though.

Good news this week included drawings for a ship that could house a brewery which could sail to places where shortages threatened. With my house being just 800 m from the beach I shall keep an eye on this development. Also developing is a black and white blizzard of Sharks support ahead of tomorrow’s semi-final against the Blue Bulls. The early kick-off provides a marvellously long post-match period in which to braai while watching the other game. Expect poor visibility in the Durban region tomorrow evening.

James Greener

15^th October 2010.

WRESTLING WITH THE RAND

Pretty much everyone it seems is keen to see the rand weaken. That is they think it would be a good thing if a unit of foreign currency were to cost more than it does at present. Quite how this can be made to happen is not clearly explained beyond a bit of arm waving and muttering about lower interest rates. Presumably the fact that our rates have been coming down precisely over the period when the currency has been going up is an embarrassment best left unexplored. The rand is strong because people with other currencies (except in fact the Yen) can see attractive things to do with rands. This includes the so-called carry trade which admittedly does rather depend on interest rates in South Africa being higher than elsewhere. Observe that the theory that after the world cup, demand for the rand would diminish has also been shown to be wrong. Sometimes the attraction of another nation’s money evaporates when the authorities in that country begin to behave erratically. This theory too is being disproved as the lunacy levels in the corridors of power rise. About the only sure thing is that when the currency does once again hit the skids and dollars cost R10 each, the moaning will be just as intense as at present with calls for someone to do something about it.

Equally puzzling is the strength of the equity market where the All Share index has been making a credible attack on the 30 000 level, a number it last enjoyed – on the way down - in July 2008. It is puzzling because the current round of company reports revealed no exceptional growth stories and some decidedly downbeat outlook statements. Very few companies or industries seem to think that business is undoubtedly getting better. Our largest bank is going to fire some staff. That’s not an indicator of things getting better. There is of course a world-wide scramble for yield and income and news of a blue chip company downsizing does cruelly suggest that they are doing what they can to keep shareholder earnings stable.

Talking of stable, all these headlines about SAB and Castel were a little worrying until it turns out that it had nothing to do with Castle, Mr Charles Glass’s finest brew. Groupe Castel is a brewery company that SAB are thinking about adding to their portfolio in their quest for world domination of thirsty folk. This share is always expensive but always worth buying!

It should also never be confused with SABC, which is a horror show pretending to be a national broadcaster. In actuality it is a device for transferring tax payers’ money to lucky individuals whose first task on assuming executive office is to submit a resignation letter along with a claim for large sums of money. Anyone sitting tight and displaying skill or interest in providing licence payers with a service is dismissed, but is still eligible for the going away presents. The SABC revolving door staffing policy provides newspapers with 5% of their daily content, none of which is ever read by anyone.

On the other hand there is great interest in reading where and when our president jetted off to, and particularly who went with him. Sadly, however, this information has now been classified and we shall just have wait until an overseas photographer snaps a picture of the fortunate fiancée before we know that we shall have to start saving for another wedding.

It is a small thing I know, but how do the teachers find the time to traipse off to their union conference just weeks before their pupils’ year end exams? The conference anyway seems to have developed into an acrimonious battle between political factions rather than a discourse about how to rescue the children from the failed experiment of OBE.

As usual these games events provide unmissable viewing for those of us unaware that girls did Greco-roman wrestling or that hockey was played in a shallow swamp or that SA has a strong archery squad or that synchronised swimmers wore water-proof makeup. The Sharks might need some of that stuff if the rain promised for Newlands tomorrow shows up.

James Greener

8^th October 2010.